𝐘𝐨𝐮𝐫 𝐁𝐮𝐬𝐢𝐧𝐞𝐬𝐬 𝐈𝐬 𝐘𝐨𝐮𝐫 𝐀𝐬𝐬𝐞𝐭 - Three Principles

As a small business owner, working through the complexities of business growth, for scale and long-term sustainability can be challenging enough. Throw in personal financial planning and basic risk management for both your business and family life, and suddenly the whole thing can seem daunting. For small business owners, the principles of Protecting Against Risk, Finding Value, and Building Wealth serve as guiding pillars, bolstering you on the path to long-term success and security. This article looks at these three critical principles, offering actionable insights for entrepreneurs looking to fortify their ventures and secure their financial futures.

Protect Against Risk

Risk management is the bedrock of business resilience. Where uncertainties are part of the life and tumble of small business, from unexpected health events to operational hiccups, having a robust strategy to protect your business is non-negotiable. A focused risk management plan encompasses several key areas: business continuity risk, owners’ risk, and staffing risk.

Business continuity risk looks at mitigating the impacts of unforeseen events on the daily running of your firm. People often assume managing ‘continuity’ is thinking only of events like the office or warehouse burning down. But there are other types of risk to think about. Protection from cyber-attacks or other IT related risks are also topical.  There are other events such as the loss of a key person; perhaps your top salesperson has a car crash while visiting clients. They are not selling in your business for 12-18 months as they recover from their injuries. How would this effect your revenue and net profit?

Owners risks are often overlooked, especially in smaller businesses. If one of the director/shareholders passed away, how do their shares get transferred to the company. More importantly, how does the deceased’s family get their money from those shares? Is there a proper legal structure in place, backed up by a financial mechanism to buy out the shares? What if one of the working directors has a disabling condition, meaning that they cannot work in the business for more than 1-2 days a week? How is that reconciled with the other working directors? Who funds that unproductive time?

Staffing risk is the last in our series. In many industries and sectors in New Zealand, there are skills shortages. This means that it is even harder for growing firms to find, attract and retain good talent. Higher and higher salaries will only deliver the result for a while (inflationary impacts aside). At some point in the salary negotiations, other means of ‘valuing staff’ have to be deployed. Group insurance schemes and other staffing arrangements can add far more value to both the company and employee for a smaller hit to the bottom line. Indeed, most reports and studies conclude that firms with robust staffing benefits outperform the productivity of firms that do not.

Find Value

The pursuit of value is at the heart of business growth. It's not just about expanding your bottom line but enhancing the intrinsic worth of your business. If your business is part of your family’s retirement plan, the importance of value creation and protection cannot be overstated for your business. This involves a deep dive into your business model, operational efficiencies, and market positioning. Strategically, staying ahead of market trends and competitive movements is vital. A flexible business model that can pivot in response to changing market dynamics is a shield against strategic risks. We know that most small businesses do not have a written plan. This is crazy. It is impossible to know that the future value of your asset if you don’t have a plan for it.

There are four clear ‘value’ parts with any investment. Grow Value, Protect Value. Extract Value. Transfer Value.

Growth in value stems from continuous improvement and innovation. Leveraging tools like SWOT analysis and the Business Model Canvas can provide clarity on your business's strengths, weaknesses, opportunities, and threats, guiding strategic decision-making.

Protecting value requires safeguarding your business's assets, intellectual property, and reputation. This means not only having the right insurance in place but also building a strong brand and customer loyalty, which are invaluable assets in themselves.

Extracting value is about realising the full potential of your business's assets. Whether it's through profit distribution, reinvestment into the business, or diversification of your investment portfolio, ensuring that your business's growth translates into tangible benefits for all stakeholders is crucial.

Transferring value is all about realising the investment return at the termination point – when you sell and hand over the reigns to someone else. You are transferring the value to someone else, and in return, you hope to maximise your return. This capital appreciation and investment realisation, for many small business owners in New Zealand, is a key part of their retirement plan.

Build Wealth

The ultimate goal for many entrepreneurs is not just to build a successful business but to translate this success into personal financial security and wealth, particularly in retirement. Understanding the interplay between your business's lifecycle and your personal financial goals is essential in this endeavour.

Building wealth involves strategic asset allocation and diversification, not just within your business but across your entire investment portfolio. This might include real estate, stocks, bonds, and retirement accounts like KiwiSaver. The key is to ensure a balanced portfolio that mitigates risk while providing the growth and income that you will require.

For business owners, the sale or succession of their business is often a significant component of their retirement plan. Preparing the business for this transition, whether through enhancing its value, streamlining operations, or developing a strong leadership team, is a critical step in ensuring you can maximise the return on your life's work.

Additionally, understanding and planning for the decumulation phase—where your accumulated assets are converted into a sustainable income stream in retirement—is just as important. This involves not only financial planning but also considering how you want to spend your retirement, from leisure activities to potential part-time work or philanthropy.

Conclusion

For small business owners, the principles of Protecting Against Risk, Finding Value, and Building Wealth are more than just strategic imperatives; they are the pillars upon which sustainable business success and personal financial security are built. By bolstering these core areas, entrepreneurs can not only navigate the challenges of business ownership but also pave the way for a prosperous and fulfilling future. ‘Financial peace of mind’ doesn’t have to be just a fancy throw-away byline, it can be a real and tangible goal.

Embracing these principles requires a holistic approach, combining strategic business planning with personal financial foresight. Regular review and adaptation of your strategies in line with changing circumstances and goals are essential. With the right focus and planning, small business owners can turn their entrepreneurial ventures into lasting legacies, securing not just their financial futures but also those of their families and communities.