IN the first of a series of articles, Graham Gordon, partner and head of financial planning at Moore and Smalley Chartered Accountants and Business Advisors, looks at the issues that face businesses and their owners at every stage of their life-cycle – from start-up to exit.

Simple as it may sound, when people take that brave step to start their own business they must take into account the fact that the benefits and securities that their previous employment might have offered them have gone! It’s a stark fact which emphasises the importance of proper financial planning.

Careful forecasting and preparation are essential to lay the foundations to successfully build your personal future. So besides putting together a business plan, owner-managers must also put together a personal plan to set out their own financial objectives and how they are going to achieve them.

Obviously a business plan will cover sales, cashflow, overheads, insurance, bank borrowing and so on; and the personal plan should also look at similar areas – income, expenditure, personal borrowing and even retirement planning. In other words, how the owner-manager is going to finance and protect the life they want to lead while the business is being built up.

During the first year it is perfectly acceptable to put off making any pension contributions to help cash flows – as you cannot access your pension until you actually retire. However, this cannot be ignored in the long-term as you will be creating a ‘black hole’ in your pension fund.
One area which many owner-managers neglect is personal financial protection, i.e. safeguarding the business and their personal ability to earn an income should the worst happen.

It is essential to put adequate provisions in place, which may include (as applicable) death in service, medical cover, income protection and life insurance/loss of profit insurance to safeguard the most valuable asset to the business – themselves.

Owner-managers need to ask themselves some stark questions, such as:
• How would they replace the income brought into the business if they were seriously injured or fell critically ill?
• Is there anyone in the business with the skills and expertise to take over the day-to-day management should they be unable to work?
• How would they replace the income brought into their household if they were seriously injured or fell critically ill?
• And worse still, what would happen to the business if they died and how would their family be provided for?

There is so much to consider when starting a business both from a commercial and personal point of view. Always seek expert advice when putting together personal and business plans. By planning, preparing and protecting you’ll give your business and your personal financial dreams a head start.

For further information, contact Graham Gordon, Partner and head of financial planning at Moore and Smalley Chartered Accountants and Business Advisors, on 01772 821021.