It is an interesting question and one that advisors are asked often. Every business wants to be successful but being successful is only one part – there are lots of other things that have to be done.
Your business is a means to an end and the idea is that your business makes enough money so that you can live your life the way you want to. A list of things a business must have in place is not just those that make their business successful but also covers a business owner’s financial matters. So, what are they?
1. Passion
It never ceases to amaze me what a business owner can do if they are passionate about their business. You must love what you do because if you don’t you will lose interest very quickly. As a general rule if you get out of bed not wanting to go into in your business it is probably time to get out of your business.
2. Get the right team in place
Spend a bit of time putting your team in place. You will need a good mix of people. Some will need to be academic and have skills, with a supporting team to help on the administration side. Invest in your team as the world is changing fast and it is important that you and your team know what the latest trend is and what will give your business the edge against your competition.
3. Goals
Every business owner must know where their business is now, where it is expected to be in one year’s time, 2 year’s time, 5 year’s time and beyond. They must be written down otherwise it will not work.
It usually means organising a day of thinking and setting strategy. This sounds daunting but it is not that difficult. If you have a small organisation it could just be the main business owner undertaking the exercise and then discussing it with the team.
It is important that your team understands what you want to do and achieve and that they believe it is achievable. Larger businesses should include the team when setting goals.
4. You must know what level of income you need to live your lifestyle
This is usually my favourite question. Most business owners do not know how much their business needs to make in order to maintain the owner’s current and future lifestyle.
It usually means working out what you are spending your money on. Try recording all your personal transactions for a month. You will be shocked to see what you are spending your money on.
5. Know your figures
Your business should be able to provide trading figures for you at least quarterly. If you only find out how well your business has done when your tax advisor does the year end tax it is too late.
Real time information is now available with new cloud technology an if you have a good firm of accountants they should be accessing your figures and having regular conversations about how well you are doing and if things are not good telling you what you need to do to change things around.
6. You must have an action plan should the main driver of the business leave/ die.
Most small businesses have one or two major individuals in the business. Without them the business could collapse very quickly. Issues usually arise when business partners decide to go separate ways. The death of the owner or a partner can also have serious implications.
You should have a strategy to ensure the business can operate with the least amount of disruption should this happen. Usually this means a shareholder agreement and/ or a buy and sell agreement. Buy and Sell agreements are basically an insurance policy which can be used to buy the shares of the deceased partner.
7. You must have some kind of estate planning
The majority of people in Australia do not have a will or if they do it is out dated. Death is a very stressful time for family. If you also have young children, children from a previous relationship or stepchildren everything becomes more complicated. What happens to your share in your business? What happens to your Super? These are all matters that need to be discussed as part of your estate planning.
You might ask why this is relevant to the success of your business. A business is rarely successful if there is no unity in management and this usually happens if there is not understanding on who will take over the business if the main driver of the business leaves.
8. Must have adequate insurance – personal and business
Whenever I ask this question I usually get a blank look or an answer to the effect that ‘yes I have that’. Usually when we look at them in detail we find that they are under insured. We recommend you have at least adequate life cover, income protection and trauma cover. Life cover should cover all your liabilities and a bit extra for your family.
We also find that if a spouse is a stay at home mother/ father they also need adequate insurance. Should they die, the main breadwinner will still have to work so who will look after the children? The life cover of the stay at home spouse should cover childcare fees and more.
9. Must have some kind of retirement plan
You really need to work out how much money you will need when you retire. This is not easy but sitting down with a professional will help. Saving via superannuation has some great tax benefits but one needs to start early. One thing you need to bear in mind – the state pension is not sufficient to live on.
10. Must have some kind of succession planning in place
Who will take over your business when you retire or decide that you will hand over to someone else? If succession is to go to a family member this could cause rivalry between family members seriously affecting the business. Any plan should be discussed so that all family member know what the process is.
If the business is to be sold then planning should start 5 years before sale. Start systemising your business now and get it ready to operate without you. Research has shown that businesses with good written systems sell for more than those that have no written systems in place.
11. Should be surrounded by experts
This means a great business advisor or accountant, who is proactive and will ask questions outside tax and accounts. You should have a financial planner who can help in investing, retirement planning and insurance. You also need a plain talking solicitor for your wills, shareholder agreements and other legal matters. These three should be happy to meet to talk about your affairs and be willing to work with each other.
The above will not guarantee success but if implemented it might make life a little bit easier knowing you have covered some of things that are important.
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