Financial Planning For Businesses: 5 Key Tips
Financial planning is often thought of as referring to individuals, and organising their finances to line up with their goals. Yet the process of financial planning is also hugely important to businesses as well.
Last year, there were about 5.7 million businesses registered in the UK. There has even been a considerable rise in the number of people becoming self-employed, and starting their own businesses.
In this situation, personal financial planning and business financial planning will become highly intertwined. Indeed, as Independent Financial Advisers in Lincolnshire, we help a number of clients like this and so we know that such individuals need a cohesive, integrated financial plan which holds these aspects together effectively.
Regardless of your business type or structure, its success or failure is highly contingent on its financial plan. This, in turn, obviously affects your income and security as a business owner, as well as that of your employees.
With these points in mind, here are 5 key financial planning tips we recommend in order to sustain your business towards its goals, and even thrive:
#1 Establish Your Personal & Business Goals
As mentioned above, your personal goals and business goals are inevitably connected. Yet they also need to be regarded separately within the context of a wider financial plan.
Indeed, quite often the two can conflict with one another – which can present some difficult tensions to resolve. For instance, suppose your personal financial goal is to save, yet your business goal is to grow. The latter likely will mean borrowing more, yet the former will likely mean some form of cut back on spending.
Sometimes, you therefore have to consider sacrificing one goal for the other – at least in the short to medium term. In the case above, for example, it might be that you prioritise growing your business. In the future, when you expect it to expand and bring in more income, you therefore plan to set aside more towards savings.
On the other hand, you might do things the other way around. It depends on your own unique goals, needs and financial circumstances. Speaking with a qualified, experienced independent financial adviser who understands both personal and business financial planning can really help you navigate these complex issues, and plan effectively for the years ahead.
#2 Control Your Expenditure
As a business, it’s very easy to lose track of spending or for expenses to unexpectedly rise. Especially when you are making lots of purchases (e.g. software, apps, devices for staff etc.) which seem small on their own.
Effective financial planning for businesses requires that you have a solid grasp of your fixed costs, as well as a good idea of your variable costs. It means being aware of the volume of potential buyers, the value of your product as well as margins.
At the very least, you need to know your break-even point, and have a clear picture of your revenue versus outgoings. In addition, stay vigilant in areas where costs can escalate out of control, such as marketing spend (e.g. cost per click channels like Google AdWords).
#3 Understand Your Tax Liability
This one is crucial, since planning your tax ineffectively or incorrectly can land you in serious trouble with HMRC. In some cases, it can result in fines which could sink your business.
So it pays to carefully map out your tax liability when constructing your business’ financial plan. However, this is a complex area for businesses to figure out on their own – especially larger ones with multiple income streams, product lines and distribution channels.
At the very least, carefully consider what your liability will be for Income Tax, PAYE, National Insurance, Corporation Tax and VAT. Speak with a professional, independent financial adviser if you are looking to ensure you have a solid financial plan in this respect, and especially if you want to increase your tax efficiency.
#4 Workplace Pensions
Often overlooked by some business owners, you need to carefully plan your business finances in light of your pension obligations as well. If your company employs more than just yourself, this is especially important when you factor in auto-enrolment.
Make sure your business is properly registered, and meets the standards and regulations required of it by The Workplace Pension Scheme.
#5 Have a Clear Exit Plan
You might love your business now, and expect to for the years ahead. Or you might hate it, and want to get out in the next few years. Sometimes unexpected events transpire, like ill health, divorce or death which force you to leave.
Regardless, at some point you will leave your business. Regardless of its size, type or industry, your financial plan therefore needs to set out how your business will cope in the event of your eventual departure.
You should also have a clear plan in place in the event other key people leave the business as well – such as key stakeholders, or other founders / directors. Do you have adequate insurance or measures in place to weather that storm?
Of course, the above five points are merely a handful of the many different aspects a solid business financial plan should incorporate. For instance, the above could also talk about inheritance tax planning for businesses, creating a financial safety net, creating a solid business plan, monitoring cash flow and more. Yet we only have so much space in this article!
To construct a solid, tax-efficient financial plan for your business, please do get in touch with us to speak to one of our experienced business independent financial planners in Lincolnshire. We offer a free, no-obligation initial meeting to identify your needs, and help you get started.