Planning and managing the inflow and outflow of money is the single most important factor in determining whether a business succeeds or fails. A home based business may have the additional disadvantage of not having the personnel to plan money management and/or monitor the cash flow on a regular basis.
However, by following a few simple smart money managing principles the owner of a home business can ensure the continued success of the business. It is also important to understand the difference between cash flow and profits.
Cash Flow- is the money required to cover the business’ day-to-day expenses.
Profits- is the difference between the income and the outgoings of the business and is usually used to pay back debts and fund the long-term growth of the business.
Develop a Cash Flow Budget
Using a simple Excel Spreadsheet record the amount of money that flows in and out of the business, so that the availability of funds can be forecast at any given time.
Establish a Sound Receivables Strategy
Collecting the money that the business is owned in full and on time goes a long way towards a healthy cash position. Depending on the type of product or service offered, determine if extending credit is necessary. Payment in advance or a COD (Cash on Delivery) arrangement will assist in maintaining optimum financial efficiency.
Analyze the Cost of Doing Business
As much as possible eliminate or minimize fixed costs. However, understand the nature of the costs to determine if the best strategy is to hold or increase margins or to increase market share. The approach to cost reduction will vary depending on the chosen strategy.
Examine the Current Banking Structure
If the business has several accounts such as a trading account, a loan account, an overdraft account and/or credit card with several financial institutions, it might be possible to negotiate the reduction of fees by consolidating the debts into one banking facility.
Ensure the Loan is Right for the Purpose
Review the borrowings to ensure that the type of loan is correct for the business. Getting the right loan product can save money and help improve the cash flow required to run the business. For instance when purchasing an asset ensure that the term of the loan matches the lifespan of the asset, because paying for an asset that is no longer useful to the business is not good money management.
Understanding smart money management and getting professional help, if necessary, to establish a cash flow budget and analyzing cost cutting strategies will help to ensure the success and growth of the business.
Succession Planning for Small /Home Business
Succession planning is often taken for granted by some small or family-run businesses. It is important to consider it early on, whether the entrepreneur only plans to retire or not. Most critical, is the issue of the inevitable event of death or accident of the business owner.
The Importance and Features of an Effective Business Succession Plan
The lack of proper transition planning is an important factor why some small businesses fail after the family business head or founder dies. It is disastrous for a flourishing and profitable business to lose it from lack or absence of succession planning. It is also devastating to think of the business owner’s efforts and sacrifices to build the business, only to be insolvent.
Most business owners face the challenge of either transferring ownership to a family member or selling their business. It is highly important to come up with a good plan and implement. Here are some features of an effective business succession plan. It helps the business owner:
- Carry out the succession of the business and ownership in an orderly manner
- Reduce future complications among the heirs, as control is transferred according to the wishes of the business owner
- Provide overall economic well-being for everyone after the business owner is gone, retired or demised
- Minimize the tax liability for business owner and the heirs
Succession Planning Issues for Small or Home Based Business
Everyone will have to retire sooner or later like the list number roulette exit online game. Retirement is not just a matter of deciding to retire or not. With succession planning in a small or family-run businesses, important questions are formally answered, such as: “Who will manage it after I’m gone?” “Will I want my business to continue or will I sell it?” “Who’s going to manage it after I go?” Such questions and other related issues are better addressed if these are prepared beforehand.
Financial Issues
A succession plan should be part of the overall financial plan that covers objectives and other needs. It is more effective to break it down into three key sub-issues:
- ownership
- management
- taxes
Management and ownership are not always necessarily one and of course not the same. For instance, the business owner may want to transfer business management to one of the children but transfer equal shares of business ownership to all children, and this is whether they are actively involved in the business operations or not.
Tax minimization strategies also play a key role in the planning process. The taxes component of succession planning looks at how to minimize taxes upon death. There are asset transfer tax strategies or tax accountants and lawyers who can be consulted to provide valuable advice.
Family Relationships Issues
With family businesses, succession planning sometimes turn to be slightly complicated because of the personal relationships involved. Therefore, early on topics such as aging, death, and financial affairs should also be dealt with.
In small and home based business, family is often the primary emphasis of succession planning. Whether the direction is future business management or business ownership, the business owner’s succession planning should be a part of his or her overall business management and system processes. Apart from ensuring that enough business money is available to retire on, the life of the business is at stake when he’s no longer running it.
