How to future-proof your business finances

| August 3, 2018

You only have to look at the decline of camera shops, video stores or even the value of taxi licenses to see that factors outside of your control can contribute to the success and longevity of a business.

Technological developments, new trends or a change in economic conditions can cause big disruptions that will hit small businesses hard if they haven’t planned ahead.

It can be hard to stay ahead of the game but while no-one has a crystal ball, there are steps you can take to future-proof your business financially and protect your assets to ensure you are not left high and dry when conditions change,.

Planning is key, you need to take off the blinkers and look seriously at what the issues and threats are that could affect your business in the years ahead,.

Running a small business can be all consuming and people can take it for granted that it once it has achieved success that success will continue, however that’s not always the case.

Business owners should focus on making the most of the business while it is returning a profit, whether that’s through paying off debt or by investing in assets held separately from the business such as investment properties, share portfolios or superannuation.

It’s really important to map out the goals of the business and then through forward modelling look at different scenarios of how to achieve those.

Everyone has different aspirations, it might be to sell the business for a healthy profit to fund a comfortable retirement or to live off the income the business is generating.

What’s possible will depend on where the business is at in its lifecycle, whether it is new, well established or in the process of winding down.

If you can be planning five or ten years before an issue arises then you will be in a much better position to deal with it.

Investigating your options can be quite confronting but that is the role of a strategic adviser who should have those frank discussions with you and discuss the various options and scenarios.

While it comes down to individual circumstances, I’m a fan of paying down the debt on your own home, which takes the pressure off.

Then if something happens in the business you will at least have that security behind you. However, others may prefer to invest in property or a product like super, there is really no right or wrong answer as it will depend on personal situations, ages and goals.”

Small business owners need to think long-term, will their business be viable in 20 years or will the socio-economic or business conditions have changed and if so what is the back-up plan.

A financial checklist to build wealth from your small business should include;

Understanding cashflow – Understand where your money is going and what it enables you to get out of your business. Businesses that survive in a boom or bust environment have invested in financial strategies that take into account the ups and downs in their cashflow.

Creating a saleable asset – Small businesses can be hard to sell if they rely on one or two key people who are at the heart of a business. It’s essential to take away reliance from those people and put in place well documented policies and procedures. This is where planning again is essential, it’s not a two to three year plan but a five to ten year process to instil the right structure to ensure the business is something you can extract capital from.

Updating technology – It’s important to keep up with the times, technology is always evolving and so should you. New systems could ensure you stay relevant and save time and money.

Diversification – Extracting wealth from a business ensures you are building assets not just relying on the business to provide for you. Circumstances and conditions constantly change and if you haven’t been asset building outside of your business then you are very vulnerable to any changes.

For more information on how to future proof your business and assets go to Boutique Advisers; www.boutiqueadvisers.com.au.

This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.

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Tahni Davison

Tahni Davison works for Boutique Advisers and helps families and small business owners achieve their financial goals.  Boutique Advisers help mentor people in their finances from all walks of life – from families to entrepreneurs, athletes and business owners.