Running a small business is a labour of love, filled with dedication, hard work, and countless challenges. A 2019 study by the Small Business Institute found that only around 30% of small businesses in South Africa survive beyond their first year.
The success of any business requires some skill, a bit of luck and a lot of dedication and hard work, and as a result, if a small business does ‘make it’, it is worth looking after.
As the saying goes, the difficult part is not making the money but rather keeping it and the same rings true for small businesses. According to a survey conducted by the Small Business Institute (SBI) in South Africa in 2018, only 33% of small businesses have a formal business continuity plan in place. In addition, 41% of small business owners do not have a clear idea of who will take over their business when they retire, become critically ill, disabled, or pass away.
According to Sharon Hamman, Momentum Senior Legal Adviser, a business continuity plan is the key to ensuring your business can continue to thrive if any of the abovementioned events should happen. Just as each individual should have a personal financial plan and a Will to protect them and their loved ones against major life events and its associated financial risks, so too is it necessary for a business. As a business owner, it should be high up on the to-do list to consult with your financial adviser to get this plan in place.
“Continuity planning is not only a business strategy, but also a responsibility towards the legacy you leave behind. While it isn’t complicated, there is a lot to keep track of and put in place,” says Hamman.
A business continuity plan sounds simple enough- make sure that the business continues -but the devil is definitely in the detail. Business continuity is the core of any business continuity plan, and it entails many facets. It is concerned with the future existence of the business during your lifetime and beyond and entails the following (to name a few):
- It ensures that there is a practical plan to address the future ownership structure of the business if you should become disabled or even in the event of your death. The aim is to protect all parties that depend on the business for their livelihood, including the business owners, their dependants and the employees that help you build it.
- It considers the funding structures of the business and secures the business’ financial future by protecting its balance sheet when life events happen. The key is to ensure sufficient funds are available to service or settle debts to creditors. As most business owners literally sign their lives away to procure funding for their business, it is vital that debts can be settled to protect your personal estate. You do not want your business to leave your personal estate insolvent.
- It protects one of the most valuable assets of any business – its people. It weighs up the risks associated with losing key employees and what the costs would be to replace them. It focuses on the retention of staff by implementing simple, yet effective incentive schemes. It helps you to take care of them in the same way that you want them to take care of your business.
- It does not only focus on business continuity associated with your life events, but also considers the future expansion and growth of the business and making sure the business is geared to meet those future milestones.
- It considers your retirement plan and how it interplays with your business’ future plans and how to secure your financial future beyond retirement whilst protecting the interests of all stakeholders. Not a simple exercise, but necessary.
“As a small business owner, your vision and dedication drive the success of your venture. Protecting your business against life-related risks is a responsibility that should not be overlooked. It is good for you, your family, your employees, and therefore good for your business,” Hamman says.
With the plethora of options floating around the market, Hamman says it is vital that small business owners seek professional advice from a financial adviser to guide them through the planning process. A financial adviser with the necessary business planning expertise can help assess the risks and opportunities and recommend the most appropriate financial products to make sure those risks, needs and goals are addressed. It is not a once-off exercise – it is a journey rather than a destination and as the business changes, the plan will change.
“Engage with your financial adviser as part of taking proactive steps to secure your business’ future. With a solid plan in place, you can leave a lasting legacy and empower your business on its journey to success,” she concludes.
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