Financial Planning for Business Owners – I was prompted to write this blog by an e-mail from an Insolvency Company who informed me that “Many businesses of all sizes are slipping towards insolvency, here is a list of things to look out for that could potentially show the signs of insolvency.
- Over trading (lack of capital to pursue growth strategy, declining profit margins)
- Accrued debts with HM Revenue & Customs
- Significant bad debts & ageing debtor ledger
- Terminal bank overdraft position – continually at the limit”.
Laughingly they go on to say that “this will allow you to act sooner rather than later” !
Of course a struggling business is no laughing matter.
Trading companies are the life blood of the UK economy, if one company fails, this has an economic effect on their suppliers and creditors.
Just to remind you what a Close Company is, it is company whose shares are closely held by the Directors. In other words, it is a company that is owned by the Directors (and majority shareholders) of that company.
This type of trading company can vary in size and often the growth (or lack of it) depends not only of the business drive and acumen of the Director Shareholders, but also on their chosen “advisers”.
This unfortunately is where almost all business owners go wrong, as very often they seem to rely upon their accountant as an “adviser” to the business. Too many business owners in order to constrain costs believe that the often derisory fee they pay to their accountants entitles them to everything from advice on business planning to tax advice.
Accountants are for the most part, very decent people, their role is to provide compliance to both Companies House and HMRC and ensure the company accounts are in good order.
Sometimes a business owner regards his bankers as advisers as they have has a “good relationship” with their bank, this often means that their current bank manager will lend them as much money as they want when the business is profitable and then reduce their overdraft (or impose stricter terms) when the business begins to fail.
I spent two years in a business efficiency unit in a senior position and that taught me that all businesses can be improved quite considerably by having someone not involved in the business, provide an independent viewpoint.
It is important that there is a regular point of contact between this independent source and the business owners, this does not necessarily have to be a face to face meeting, often a combination of meetings and regular telephone calls and e-mails provide the necessary level of support.
It’s necessary that the independent source has experience in both financial planning for business owners and sufficient knowledge of both legal and tax matters that apply to a business.
That’s because to be of proper assistance to business owners (who are invariably time poor) an adviser needs to offer a one-point facilitation service to provide truly comprehensive advice.
Perhaps the best way to conclude this blog is to provide some pointers:
Maintain control of your business
Have some means of be aware of the financials of the business, this does not have to be highly detailed, sometimes a simple excel spreadsheet is all that is required. You will need to know what your regular outgoings are, as well as what big payments out are due as well as potential monies in. You should also be aware on a monthly basis of the Directors individual PAYE payments, dividends and Directors Loan account balances to date.
In addition maintain a proper company Minute book, I normally do this for my clients – as they simply do not do this in a proper manner!
Structure your business for growth
Structure your business for growth, so you provide for opportunities in the future. It also means looking at any potential problems and having a strategy to deal with them. This also should include structuring the Directors pensions as a tool to assist both the business and increase your personal wealth.
Create a turn-key business
Many business owners, even though highly successful are still grinding out the hours, to be truly successful – you need to structure the business so that you are redundant from the business – and can take more time off to be with the family. You will find (despite spending more money to recruit more help) that your business gets even more profitable.
What financial effect can proper planning provide ?
Two of our business owner clients have become multi-millionaires, despite having quite serious financial issues with their businesses that required fairly advanced planning to resolve. Our assistance in dealing with these issues and our continued planning allowed these business owners to do what they knew best – focus on their business.
To download our new Financial Planning Guide for Business Owners CLICK HERE