Business owners wear many financial hats. It is their responsibility to plan ahead – for the company, for themselves and other shareholders as owners, for the management team and for employees.
Planning is the key and there are several areas that should be reviewed on a regular basis to ensure your business is protected and organised for all that may happen in the year ahead.
Whether a sole trader, partnership or company, every business has a commercial reason to exist – in other words, each exists to make a profit. However, setting up a business also brings with it financial obligations.
A business is responsible for the salary and benefits packages offered to management and other employees.
It is also responsible for protecting itself from risk, such as by maintaining adequate insurance cover to offset the cost of losing a key member of staff through death or illness.
Each company must decide what to do with surplus funds in the short, medium and longer term. Striking the right balance between return, liquidity and tax efficiency can be a challenge, particularly when interest rates are historically low.
There are other pertinent questions too: Should business premises be rented, bought by the company/business owner, does the business have any unprotected loans or debts? What is going to happen to the Business long-term, will it be sold or passed on to the next generation?
There are no stock answers to any of these questions and the right course of action depends on the specific company’s circumstances and outlook.
Small businesses will not necessarily have a management team, particularly if the owner is ‘hands on’, but the company’s resources – whether human or financial – must be managed effectively.
Ensuring continuity of management is vitally important. To this end, devising a benefits package to aid retention, alongside coaching the management team and other key employees on the importance of having their own personal financial road map is key.
A contented workforce is a valuable asset to the business. Retaining staff that have the right attitude and aptitude, even amid difficult trading conditions, can be a challenge. Studies have shown that a contented workforce can help an organisation to succeed and can even determine whether or not a struggling company survives.
An effective and relevant benefits package in place for employees can make a significant difference to maintaining and attracting motivated employees and ensure your business is fit for the year ahead, with all the challenges that are yet come.
All businesses should have a process to help identify and deal with risk. In this way, a business owner can be sure that the financial welfare of their business and its people are well looked after.
Every business has key workers, without whom the company could suffer irrevocably. It is important to identify these key workers and quantify the risk in financial terms of them being unable to work due to death or incapacity and ensure adequate insurance is in place.
Research suggests that 40% of businesses would cease trading in under a year after the death/illness of a key worker, with 60% estimating that it would take up to a year to find a replacement.
In the event of the death or critical illness of a key person, could a cash injection help to secure the future of the business?
It is from the company’s profits that business owners are rewarded in the short-term; in the longer-term, they might also benefit from selling all or part of the company.
Business owners tend to be very focused on their business, sometimes to the exclusion of other aspects of their lives and financial affairs. In the long-run, though, business life is relatively temporary and there is a need to plan for a life after business.
Jonathan Craig is our Head of Corporate Services and is based at our Aberdeen office and can be contacted on email@example.com.