STAGES OF BUSINESS FINANCIAL PLANNING
Which Stage is Your Business In?
Businesses come with many challenges and cycles. You need a partner that understands the financial challenges at each stage. We’ll help you maximize opportunities in your business during its various stages, and therefore we will work to allow the business stages to maximize opportunities for your financial plan.
Our goal is to be ready to help your business move forward successfully. Contact us today!
Stage 1: Start Up / Existence
Cash-flow planning is paramount. The main challenges of the business are obtaining customers and delivering the product or service.
Key questions are the following:
- Can we get enough customers?
- Will our products / services allow us to become a viable business?
- Can we expand from our initial key customers to a much broader sales base?
- Do we have enough money to cover the considerable cash demands of this start-up phase?
Your organization is a simple one—the owner does everything and directly supervises subordinates. Systems and formal planning are minimal to nonexistent.
The company’s strategy is simply to remain alive.
Financial Planning Opportunities That May Apply:
- Develop a business budget (separate from your personal budget)
- Consider how you’ll “pay yourself” and how you’ll save for the business
- Maximize short term opportunities to put your money to work
- Participate in networking events and business development opportunities
- Consider individual / corporate retirement plans
- Manage income tax consequences
Stage 2: Survival
Your business has demonstrated that it is a workable business entity. You have enough customers and products or services to keep them. The business shifts from mere existence to the relationship between revenues and expenses.
The main issues are as follows:
- In the short run, can we generate enough cash to break even or cover ops or inventory costs?
- Can we, at a minimum, generate enough cash flow to stay in business and to finance growth to earn an economic return on our assets and labor?
- The major goal is still survival
- The owner is synonymous with the business.
- Is the business effectuating growth in size and profitability and a move toward “success”?
- Is it time to go out of business?
Financial Planning Opportunities That May Apply:
- Create set aside for survival and growth
- Consider cash surplus for future hires and developing a burn rate cushion
- Participate in networking events and business development opportunities
- Consider corporate retirement plans
- Begin to consider business secession planning
- Consider “key person” life insurance for buy out and estate planning
Stage 3: Success
Time to consider whether to exploit the company’s accomplishments and expand.
A key issue is whether to use the company as a platform for growth or as a means of support for the owners as they completely or partially disengage from the company. Size and market penetration begins to ensure economic success. Earnings lead to average or above-average profits.
Continue growth and require functional managers to take over certain duties. Cash is plentiful and the main concern is to avoid a cash drain in prosperous periods to the detriment of the company’s ability to withstand the inevitable rough times.
The business can be sold or merged at a profit, or subsequently be stimulated into growth. Among the important tasks are to make sure the basic business stays profitable so that it will not outrun its source of cash and to develop managers to meet the needs of the growing business. Systems should be evaluated with attention to forthcoming needs. Operational planning and strategic planning is extensive and deeply involves the owner.
Financial Planning Opportunities That May Apply:
- Consider cash surplus for future hires and in developing a burn rate cushion
- Invest corporate cash in a “laddered” fashion for the future of the business
- Smartly take distributions for tax, income, individual wealth planning
- Implement corporate retirement plans
- Implement business secession planning
- Strongly consider exit options, status quo strategy, valuation of the business, estate planning
- Consider “key person” life insurance for buy out and estate planning
- Invest cash, establish borrowing power of the company, and take appropriate risk to finance growth or acquisition.
Phase 4: Growth and Maturity
Key problems are how to manage rapid growth and how to finance that growth.
The most important questions, then, are in the following areas:
- Can the owner delegate responsibility to others?
- Will the action be true delegation with controls on performance and a willingness to see mistakes made?
- Will there be enough cash saved to satisfy the great demands growth brings, and a willingness to potentially tolerate a high-debt to-equity ratio?
Building cash and maintaining cash flow that is not eroded by inadequate expense controls or ill-advised investments. Developing the competency of key managers or hiring very competent managers. Investing in technology for the future of the business.
This is a pivotal period in a company’s life as it can become a big business or it can be sold for a significant profit. The greatest concerns of a company entering this stage are, first, to consolidate and control the financial gains and, second, to retain the advantages of small size, including flexibility of response and the entrepreneurial spirit.
Owner and the business are quite separate, both financially and operationally.
Financial Planning Opportunities That May Apply:
- Strongly consider exit options, status quo strategy, valuation of the business, estate planning
- Implement the business secession plan
- Consider family members as key stake holders and related ownership structures
- Diversify ownership to reduce risk, manage tax impact, and create generational wealth
- Separate the owner from the business, investment risk, personal and estate liabilities
- Establish appropriate trusts for estate planning and business valuation management