Our recent William Buck Hour report drew on over 100 hours of conversations with business owners to determine six key challenges faced by the sector; one of which was poor strategic planning.
In fact, an alarming 75% business owners involved had no written business strategy. Not surprisingly, it was those same business owners that came to us struggling to realise their business goals.
Here, we identify five key risks that emerge from neglecting to write a clear business strategy.
Our William Buck Hour conversations uncovered that 30% of business owners have a fundamental issue with their business structure. An ineffective business structure can cause myriad issues for business owners and often they emerge when it’s too late and the problems can’t be solved without significant expense. We have found for example that business owners have been prevented from admitting a new shareholder, couldn’t release funds from their business, or risked losing their personal assets.
Of those that have come to us with a lack of, or ineffective business structure, 85% found that they were paying more tax than necessary.
There are four basic types of business structure. We go into more detail on these in our article Protecting your personal assets as a business owner (link). But what’s important to know when setting up your business is that each structure has its own advantages and disadvantages, especially when it comes to tax.
While you can restructure down the track if you neglected to write a business strategy and determine an appropriate structure at start up, this can trigger unwanted costs and taxes.
Get it right at the start to achieve a balance between tax effectiveness and commerciality.
Our William Buck Hour conversations uncovered that 25% of business owners have one or more issues with funding.
Issues include a lack of understanding around how much funding is required, the absence of a three-way forecast or budget, and the inability to access finance.
Financial issues have a domino effect, often creating larger business issues. If lenders see there’s been inadequate budgeting or financial planning, they might be hesitant to lend. This can lead to a business exhausting its current finances, creating more problems like unhappy and unpaid suppliers, and even putting their personal assets at risk and limiting their ability to apply for future finance.
These issues could largely have been avoided with the development of a coordinated business strategy and three way budget. In addition, a business strategy, and help from a business advisor, could lead to greater access to grants and incentives like Australia’s R&D Incentive Scheme, which may assist with the cashflow.
Our William Buck Hour conversations uncovered that 80% of business owners have used personal assets, usually their home, to secure their business loan.
This places the asset under a huge amount of risk and can even lead to it being seized if the business gets under financial pressure.
By neglecting to identify other means of securing finance and/or adequately negotiating asset or other protection strategies, business owners fail to protect theirs and their family’s future.
Planning around how to structure and what security is required with your business adviser can alleviate this risk.
William Buck’s Exit Smart Survey revealed that few business owners undertake sufficient planning ahead of an exit. Considering all the issues up front and considering succession planning in your business strategy could mean the difference between a successful exit at maximum profit and a difficult exit where value is given away.
In our experience, businesses need to consider their plan for exit and succession some years prior to their proposed sale timing. This means that all the essentials are laid out for potential buyers when they undertake due diligence on the business.
When a business has a clear strategy and shares it with its people, it allows everyone to understand the business, their role in the business, and how it contributes to the common vision. It urges employees to seek ways to add value and empowers them in their role beyond self fulfillment.
Greater engagement means more productivity; more creativity; and successful, collaborative working relationships.
Our expert business advisers can help you write your vision and goals into your business strategy as well as assisting you with your remuneration strategy and implementing employee incentive schemes to ensure your key people are rewarded and engaged.
If you need help writing your business strategy, call our William Buck Business Advisory Team today.
