Maintaining good financial health is all about intelligent financial and investment planning. It’s an ongoing process essential for business success.

To begin with, you’ll need to set short and long-term goals and consider funding options. Talking to a small business financial advisor is critical. Still, there are several strategies you can use to kickstart your business finance management. Read on for more guidance.

1. Clear budgeting

You’ll have heard the cliche, ‘fail to plan, plan to fail.’ Making and managing a budget creates an essential road map for informed decision-making and resource allocation. You’ll manage your cash flow more effectively and reach financial goals faster.

But your budget isn’t just about numbers. It’s the basis for aspirational future goals. Keep it clear, straightforward and agile so you can pivot quickly and maximise financing opportunities.

2. Set up an emergency fund

Creating an emergency fund can safeguard your business against unexpected shocks and expenses. It could even protect your credit rating by preventing a slide into bad credit.

As any good small business financial advisor will suggest: start small and increase your funds gradually. You should aim to set aside enough money to keep your business afloat for at least three months and add to your fund incrementally. However, you’ll need a larger emergency fund if you’re a seasonal business or rely on expensive equipment.

3. Invest in shareholder protection

The sudden loss of a shareholder can devastate a small business. So, putting shareholder protection in place early on could be critical for your SME. It’s a safety net if the worst happens. And it’s vital if a shareholder dies suddenly and you struggle to get your hands on the money required to purchase their shares. For most SMEs, those inheriting the shares will want to sell them to access the cash, and the remaining shareholders will want to buy the shares to retain control of the business.

Every SME must identify and plan for risk. Shareholder protection provides the funds to purchase shares and an agreement is put in place to confirm how the shares will be purchased by the remaining shareholders. You can’t eliminate every potential threat to your business, but you can mitigate it by putting relevant business cover in place.

4. Tax optimisation

Tax efficiency is critical for every business. But for a small business operating on fine margins, finding legitimate ways to minimise your tax bill is vital. As a result, you could improve cash flow and strengthen your overall profitability.

These are various ways for your SME to optimise your tax bill. However, the availability of these depends on your individual business. Examples are:

• Choose the correct business structure.
• Check whether you’re eligible for tax relief, including capital allowances.
• Increase your pension contributions.
• Claim back all your allowable expenses.

When considering tax optimisation, take advantage of legitimate investment planning advice. Our corporate financial planning team will help you optimise tax efficiency, while avoiding unlawful tax avoidance schemes.

5. Spread your risk

Every small business faces internal risks you can control and external risks you can’t. Start by identifying and ranking the most significant risks to your SME. Then, determine the right strategy to deal with the threats facing you.

Diversification is a sound risk mitigation strategy for SMEs. Investing back into your business increases your level of risk. Diversifying your investments outside your industry spreads the risk and reduces the potential impact of an economic downturn.

Additionally, you could improve your overall financial stability, or increase market opportunities. In turn, this enhances your returns and creates the potential for growth, further securing your business against risk. Furthermore, you can reduce your personal reliance upon the business, particularly in periods of poor trading performance.

Your financial planner in Birmingham and Worcester will assist you in developing a diversified investment strategy that embraces your attitude to risk.

6. Analyse cash flow

Cash flow is king. It’s the number one reason why SMEs fail. It can insulate you against future shocks. Or help you meet your current financial obligations. If cash flow is an issue, you’ll have difficulty growing your business and reaching its full potential.

Put your SME on a sound footing by analysing your cash flow and updating it monthly. It’s a snapshot of your financial health. You can see at a glance whether your business is healthy with a positive cash flow. On the other hand, if you’re constantly struggling with poor cash flow, it could be time to make some adjustments.

7. Keep business and private finance separate

When your business is starting out, it’s tempting to give personal guarantees while your SME builds a strong credit rating. However, you should look to shift those liabilities back to the business as quickly as possible.

Open a business account as soon as possible. You’ll start to build your business credit score to access affordable business funding in future.

8. Take financial advice

Financial planning is at the bottom of the list for many small business owners. Yet, it could be the key to enduring success for your SME.

Support from Kind Wealth

Working with our investment advisor team in Birmingham, you’ll develop strategies for growth. Putting together a financial plan that can be reviewed against current performance will give you peace of mind for years ahead.

Kind Wealth is one of the most innovative financial planning firms in Birmingham. No matter if you’re looking for pension or investment advice, contact us today.

Important Information

The Financial Conduct Authority does not regulate tax planning.

Tax treatment varies according to individual circumstances and is subject to change.

The value of investments and the income they produce can fall as well as rise. You may get back less than you invested.

This article has been produced for information purposes only. Kind Wealth do not advise on some aspects referenced in this article. Where this is the case, we can refer you to one of our trusted partners for advice in these areas, such as an accountant or solicitor.