Small Business Structure & Strategies – Investing and Planning

Small business owners know the pressure of building their business, paying the bills, handling the weekly cash flows and more importantly maintaining the quality service standards they are committed to. So where and why would they find the time to look at their options as investors when their business is growing and is making them enough money to maintain business growth?

A successful entrepreneurial blogger and CEO of The Van That Can – Tara-Jay Rimmer once said that you need to create harmony when living your life whilst building a successful business. Investing and building a business is somewhat akin to this concept. Every business owner knows that they cannot afford to invest in anything else other than their business at the start-up phase. The risk business owners do not realise they are taking on is the fact that their business, although very successful, may change in a split second due to the current environment we live in. There are disruptors causing havoc in every industry and if small businesses aren’t careful, they will suffer the fate of the likes of Kodak and countless other business that have been decimated by technology.

So one must ask, when is the best time to start investing? The best time for small business owners to start investing is when they are starting to realise profit. They typically have mulltiple options, they could; increase their salaries (which they thoroughly deserve), reinvest the profits back into their growing business (which is what they typically want) or invest for the future (which typically get ignored). At Alps Network, we are advocates of building multiple income streams for every business/business owner and therefore believe that all three options need to be addressed. How? By implementing a flexible percentage based system in which each business owner has to commit to a certain percentage of their profits to one of the three options above. This can be massaged to achieve what the business owners’ needs are, the business needs and also should put their investments on the right track.

The risk all small business owners face is ignoring the investment piece as part of their wealth portfolio. A common missed opportunity for small business owners as would be investors is not taking advantage of their ability to make more superannuation contributions. In the short term, this is a perfectly viable outcome but as their businesses grow father time does not discriminate and if time is not on their side, small business owners’ superannuation accounts suffer which knee-caps their options which will be covered below. Superannuation is the best entity to own assets as the current tax concessions within super saves people as high as 40% of their retirement nest egg. Imagine having a choice of pocketing 100% vs 60% at the time of life where slowing down becomes a priority. What nest egg would you take?

Investing outside of the business is a great way to create a buffer for the business that can act as somewhat of a safety measure. If the small business owner implements the percentage of profits strategy (choosing a low percentage to begin with and gradually increasing as the business grows), they shouldn’t have to worry about their business suffering because they are making profits and will hopefully be on top of the risks associated within their respective industries. Investing will allow them to create more financial options. Creating another pillar of income through investing gives the business owners more financial peace of mind which can’t hurt. The issue business owners have when investing is the fact that they may need to relinquish control of their capital to professionals. Finding the right professionals is the greatest challenge.

20160408 Small business image from hands-people-woman-workingBuilding a successful business is the fastest way to become wealthy. Investing is the best way to protect and grow your wealth over generations. Each successful business owner needs to find harmony between building a business and building their portfolio if they are to create financial synergy across these assets. One of the perks of having an investment strategy as a business owner is to be able to acquire their business premises within their Self Managed Super Fund (SMSF). This structure can save these business owners as much as 30% tax off the market rent they pay on a month to month basis. If the difference is invested in either the company or within their portfolio, business owners will achieve their financial goals at a much faster rate than their competitors. A simple idea, implemented consistently over a lifetime can create massive financial change, whether it be negative or positive. Time is the common thread that either creates or stunts wealth.

Taking advantage of the Small business Capital Gains Tax concessions needs to be part of the plan of successful business owners. Knowing the rules around this allows business owners to sell part of their business assets or parts of their business without having to pay any tax whatsoever. There are a range of criteria to pass for eligibility but if utilised as part of the grand plan of creating lasting wealth, utilising small business CGT concessions is a must. This is the government’s way of taking care of small business owners who are known to invest all of their profit back into building their business. Why not take advantage of this through creating a business succession plan?

Business owners need to understand the difference between owning and controlling their businesses. Most people aren’t aware that they can use this concept to their advantage by gaining massive leverage from existing employees and stakeholders of their business. Making one of your employees a shareholder suddenly creates massive productivity from that individual which can lead to more free time for the owner to do what is more important. In an age where time is of the essence, being able to structure these deals successfully is the difference between a run-down business owner and one that lives their lives in line with their values and what’s most important to them. Offering shares to stakeholders can create massive synergy thus resulting in building the ideal business at a much faster rate. The key take home message is to stay in control of the business by owning 50.1% of the shares. This cannot be ignored.

As per the percentage strategy above (allocation of profits), the proceeds from the sale of shares can either be utilised for business growth, increased salaries or more investments. Investing the right way with the correct structures and strategy behind every move within the small business context is a specialist field. Working with professionals who actually walk the walk is vital to the success of producing these outcomes. In an age where information is everywhere, business owners find it extremely difficult to align themselves with the right professionals to achieve their goals. The key to achieving these outcomes is to locate advisory firms that have runs on the board, who cares about your business’ bottom line & your priorities in life and who are accessible. Imagine having all pistons firing in your proverbial financial engine, how fast do you think you can achieve greatness?

Alps Network is a financial advisory firm that talks the talk and walks the walk. If you’re a small business owner who likes the sound of this article, please feel free to get in contact with us. We pride ourselves in changing our clients’ lives for the better.