Plan for Financial Success as a Woman in Small Business
Focus Your Attention on Your Customer
By Melissa Gilbert
Women in business face additional challenges to those faced by men. Women
often have to find a delicate point of balance between business and family
life. This balancing act can result in periods away from the business.
The important question then becomes: Why am I in business?
On the surface a very simple question but one for which
there are many answers, probably as many answers as there are people in
business. Each of us has our own unique and personal reasons for going
into business.
Investment Choices
As businesswomen, we have various financial options.
- Should I reinvest my surplus cash flow:
- in my business;
- into a retirement fund; or
- into something outside my business that will create
wealth I can fall back on?
Your decision should be based on both your personal and
professional needs. The balance between these choices will be a personal
thing.
When deciding your financial future, ask yourself:
- Why am I in business in the first place?
- Do I plan to grow my business?
- When and how do I plan to exit my business?
- How will I pass on my business so the value I have
created is realised?
Critical to our ultimate financial success and personal
happiness is the successful resolution of four major dilemmas:
1. Why am I in business in the first place?
This is a key question we all need to ask ourselves.
For many women, self-employment is initially a lifestyle
choice. But if a business is to be successful, revenue growth and profitability
must become central issues. Every business needs a plan. Without proper
strategic planning, commercial uncertainty, long hours and hard work may
not yield the desired rewards.
Critical points to consider:
- Management of cash flow and tax liabilities, including
GST and business activity statement (BAS) obligations is essential.
- Diversification of risk. Should all surplus cash flow
be reinvested in the business?
2. Do I plan to grow my business?
Those of us who are entrepreneurs face additional challenges
associated with business growth. There must be well-documented systems
and processes. Greater demands will be placed on our management skills.
With this demand, however, comes greater potential for
wealth creation. This is because the business can assume an identity separate
from our own. Customers and staff identify with our business rather than
with us personally. We have created a valuable saleable asset.
Critical points to consider:
- Business structures also assume greater importance.
Up until this point, we may have operated as a sole trader under our
own name. Should we take on a business partner? Should we operate as
a partnership, company or family trust? There will be taxation, legal
and possibly estate-planning considerations associated with each structure.
- The Ralph Proposals to reform the Australian business
taxation system have caused many small businesses to examine the appropriateness
of their current business structures. Business capital gains tax concessions
that might be available to a sole trader upon the sale of a business,
may not be available when a company or trust structure is used. Some
current tax and cash flow advantages of family discretionary trusts
may not be available, if tax is imposed on trust income at the trust
level before distributions are taxed in the hands of beneficiaries.
3. When do I plan to exit my business?
This critical question is often only addressed just prior
to retirement. Your exit should be planned and managed as carefully as
any other facet of the business.
Critical points to consider:
- The time leading up to the intended sale of your business
will determine the time horizon for your investment strategy. If you
plan to sell your business next year, your approach to investments will
be vastly different to the approach you will adopt if you intend to
sell and exit the business in 15 years time.
- The higher the risk, the higher the expected return.
Investment for higher return may bring higher variability in annual
returns, or a lack of liquidity. Investment strategies need to be appropriately
diversified using a mix of share, property and interest-bearing investments
before undertaking any investment outside the business.
4. How will I pass on my business so the value I have
created is realised?
You have worked hard on your business over the years.
How do you realise the value you have created in your business?
For many people in business, their business is their retirement
''nest egg''. The Government has recognised this fact and there are now
generous capital gains tax concessions.
Aside from eliminating a potential capital gains tax
on the disposal of your active business asset, the concessions allow you
to convert business assets into superannuation assets. The advantage of
this is that if there is a tax-free rollover into a superannuation fund
(there is no contribution tax or surcharge), benefits are tax-free when
taken in cash - provided they are not in excess of the reasonable benefit
limit, or tax-free if taken as retirement income.
How do you make an investment decision?
Now we have an understanding of what we need to be aware
of when deciding where to invest our surplus cash flow, let''s take another
look at your investment choices and illustrate the pros and cons of each.
o Invest in my business
Advantages:
- increase working capital to fund further business growth
- available cash to seek new opportunities
Disadvantages:
- no diversification of risk
- no protection from creditors
- more dependency on business to fund retirement
o Invest in my retirement
Advantages:
- specific provision creates certainty of income for
retirement
- tax effective use of excess cash flow
Disadvantages:
- money cannot be assessed prior to retirement age
- money cannot be used as security for further borrowings
o Invest in something outside of my business that will
create wealth that I can fall back upon
Advantages:
- more immediate control of funds
- can be used for security for further borrowings
- some options provide a degree of tax effectiveness,
such as fully-franked dividends
Disadvantages:
- cost of investing versus re-investing in own business
- market risk
At this time, there are a great many investment vehicles
available, such as managed funds, property, margin lending and warrants.
The options can some-times appear daunting.
Successful investment does not just happen.
Like every other successful consequence in life, it is
the result of a well thought out and implemented strategy with the focus
on achieving goals that are meaningful to you. It is worthwhile, therefore,
to seek out competent professional advice.
Important information:
The information contained in this article is of a general nature only.
Before you make an investment decision you should assess for yourself
or obtain professional advice on whether the information is appropriate
for your particular needs, investment objectives and financial situation.
SheFinance is a new Australian company
focused on bringing together understandable infor-mation regarding finances
for women. Its founders, Jolynne Askey and Jenny McKee, are very aware
of the investment challenges facing small businesswomen. By working with
experts, such as Melissa Gilbert from MLC, they are able to provide professional
advice to small businesswomen interested in planning for their personal
and professional financial success.
Melissa Gilbert is a financial planner
with MLC Private Client Service and is an authorised representative for
MLC Limited T/A MLC Private Client Services. Melissa has worked in the
financial planning, banking and finance industries for 10 years. Prior
to joining MLC, she worked at Macquarie Bank and Colonial Bank. Melissa
works with women in business, helping them secure their financial independence.
If you would like more information, please contact her on (02) 9957 8620,
0414 268 172 (mobile) or email: melissa_gilbert@mlc.com.au
