Managing risk, structuring and protecting your business and personal affairs is crucial to success, and even survival.
As a business owner one of your prime focuses should be pursuing ways and opportunities for further business growth. However, time also needs to be spent assessing any threats or risks that could impact on your business and its ultimate value.
Having a plan to protect the assets and financial position of the business is sound business strategy. A thorough risk assessment of your business will identify potential risks, and quantify the size of any potential loss, who will suffer the loss, the likelihood of it occurring, and ways of controlling that risk.
This review should also uncover the risks associated with taking up an opportunity, or the value of an opportunity lost (or opportunity cost) by not being able to seize that opportunity.
A financial adviser can help you identify the risks and provide options to managing them. By gaining an understanding of your personal financial situation they can suggest ways to reduce the risks of a business loss impacting on your personal assets. Risk to personal property can be reduced by ensuring your business is operating under an appropriate legal structure. A financial adviser can help to determine if the legal structure you are operating under is appropriate for your business. While the business is small, operating under your own name or a partnership may be appropriate. However, as the asset base and revenues of the business increase, a company or trust structure may be a better option. A financial adviser can also ensure that your personal assets are structured in a way that best protects them from potential business losses.
Insuring Risk
Your business may be financially impacted by loss of property, but the loss of a key person through death or disability may have a more significant impact on the long-term viability of the business. Incapacity of one of the owners or partners of a business can result in a loss of income to the business as well as to the owner’s family. Business expenses will continue even if the revenue is not coming in. Loss or incapacity of a business partner may require an injection of funds to buy their part of the business. All of these risks can be identified and quantified, and insurance can be put in place to offset the financial impact on both your business and, more importantly, to you and your family if the worst were to happen.
Opportunities to expand or diversify your business may require access to additional funds. This could take the form of an increase in debt facilities but other options may include seeking out private equity, venture capital funds, an offering to professional or sophisticated investors, or seeking public capital by way of an Initial Public Offering (IPO) and listing on the stock exchange.
* This article is for general advice only. We have not considered your relevant circumstances. Before acting on this advice you should contact your investment adviser.
