After a few weeks of tax planning and tax year end discussions, I thought the weather seems appropriate to change focus for a little while and to look at businesses, and how they secure their foundations to make sure they can weather unforeseen circumstances.
Most partners and directors will pay high levels of attention to the daily operational running of their business, they will know their turnover, profit margins, operational cash flow requirements etc, and without that, it’s difficult to understand the success or otherwise of a business.
However, what about the longer game? Not just ‘what is the profit’? but the ‘how, why and who?’ of the profit conversations? Not just, ‘what is the dividend payment’ but the ‘how, when and to whom?’ dividend conversation.
The next few weeks then, as the British Isles are battered by more storms (I’m not running a book on how many more letters into the alphabet we’ll get!), I’m going to look at securing the foundations of your business, to make sure that regardless of what’s going on outside or inside your walls, your business, profit, and your dividends are as secure as they can be, because that way you can sleep safe at night, knowing that you, and your family (which is why most of us toil as hard as we do each day, right?!) will be financially secure regardless.
This week, let’s consider the establishment of a business first. Often done with money made in a previous life, through employment, bonus, inheritance etc. An initial cash injection into a company to get it off the ground, to ensure bills can be paid as the business establishes itself, and very often the life blood of the business for several months/years, until the business is able to financially stand on its own two feet. Consider the director(s) who put the money into the business, always done in good faith, and always on the understanding that this is a ‘loan’ that will be repaid when the company is able to do so. In the normal course of events, of course this happens, a few years down the line, and the life blood loan is no longer required.
What happens though when the health or life of the generous director changes? What happens if he needs his loaned monies to assist him recover from ill-health? What if his estate needs the money back to assist financially after his untimely death? The things that we would hope would never happen, but the things that could rock the foundations of the business if they did. Does the business have the capital in a lump sum to repay? What impact does the removal of a significant lump sum have upon the trading ability of the business? What happens to the ill director or his estate if the business can’t repay the loan and has to take drastic action writing off any hope of getting the initially loaned monies back?
This is the first step in securing the foundations of a business – looking at the liabilities, not just to your suppliers and contacts, but even more importantly to your fellow partners/directors, and making sure that you have the wherewithal to repay in the event of the unthinkable happening. Not leaving the door to your business wide open for the storm of the unthinkable to rage through and damage anything in its path.
Financial planning in this context looks after you, your family and your business, and (in my opinion) any planner worth their weight will have this high on the meeting agenda when you sit down to your annual review. With many of those reviews happening in the coming weeks as tax year end approaches, it’s a great time to consider your own position, and that of your co-directors and your business and make sure you take steps to start to protect the foundations of your business.
Needless to say, if you need help and assistance, we are adept at planning in this area, and are very happy to speak to you.
Part Two next week, so in the meantime, have another great week, let the storms rage as you plan your own security!
Carrie Devonshire BSc(Hons) FPFS
Director & Chartered Financial Planner
This article is considered to be general market or informational commentary and does not constitute any type of investment or other professional advice. It is not a recommendation, nor does it take into account the investment objectives, financial situations or needs (including tax) of individual clients. This document is not intended for, and should not be construed as an offer, solicitation or recommendation to buy or sell any specific financial product or instruments, or to participate in any investment or (other) strategy. You are recommended to seek advice concerning the suitability of any investment from your independent financial adviser. Investors should be aware that past performance is not an indication of future performance and the value of investments and the income derived from them may fluctuate and you may not receive back the original amount you invested.
