Introduction to Corporate Financial Planning

Why is financial planning crucial for corporations?

Just like good household financial planning, financial planning is essential for businesses – regardless of size or industry. By engaging in good financial planning practices, you can help your corporation mitigate risks and protect assets and shareholders, ensuring you are situated for continual growth over the long term.

Good financial planning enables you to manage your corporation’s finances in a more strategic way. By creating a plan, you can set clear financial goals, track progress, and adjust your strategy accordingly.  Appropriate planning can also help to identify and mitigate risks.

Mitigating risks

Mitigating risks involves preparing for the future, anticipating challenges or obstacles, and establishing ways to reduce their impact, wherever possible.

Typically, the biggest risks faced by any corporation is when unexpected events happen which can seriously affect your company’s financial stability.  These risks could include external factors out of your control such as unexpected deaths of key members of staff, geopolitical events, natural disasters, or financial risks such as market changes, foreign currency rates, commodity prices, and so on.  Below are some of the ways in which you can manage your corporation’s liabilities to help better mitigate risks.

• Key person insurance – helps protect your business from the potential financial impacts of losing a key employee due to illness, injury, or death. It can be arranged to cover regular income to keep your business functioning. It’s best to seek professional advice if you think this could be pertinent to your business.
• Shareholder/partnership protection – provides cover to shareholders normally in the form of funds to buy shares from each other, in the event one of them becoming unable to work due to critical illness or death.
• Professional indemnity insurance – a form of insurance which protects you and your corporation from the cost of compensating a client if you have made an error that has caused them a monetary or reputational loss.
• Legal protection – this can help protect you in the event of an issue or dispute with a member of the team, or another company. It can also support you if you want to make a claim against another business or individual for damages or compensation.
• Asset protection – this strategy aims to protect either individual or business assets if something goes wrong. By isolating or distancing the assets (for example through a holding company or limited liability structure) they can be protected or shielded from creditor claims.

Investing and saving as a corporation

Corporate investing is a means of putting surplus cash to good use for the long-term benefit of your business. This approach could provide a crucial safety net in the future or capital needed for the next big venture.

Investing as part of a financial plan, just as is the case with individual saving and investing, should form part of your corporation’s financial strategy.

In the short term, you may be focused on acquiring capital and building equity into your business to help with day-to-day cash flow management, and operating the business efficiently. Once you have built some reserves you may want to consider other medium to long-term investment options, which can help you make the most of your capital. It’s important to always consider your liquidity position to cover shorter-term operating costs or if there is ever a need for an urgent capital injection.

Tax considerations

As with all areas of finance, tax should be an important factor to bear in mind when addressing your planning needs. Have a solid understanding of your business’ existing tax liabilities is fundamental, so that you can budget accordingly with no nasty surprises! Do also consider any tax which might be due if you are selling a business – if you are in the UK, Capital Gains Tax can be a substantial amount. Tax is also likely when you distribute dividends, especially given the changes in dividend allowance coming into force in 2023 and 2024.

Employee Benefits

There are a number of options which can help give your team some useful benefits to support their wellbeing. They can also offer significant business advantages too in helping you attract and retain top talent.

• Group medical insurance – this will ensure that your employees (and often their families) have access to medical expertise in a timely manner, with direct billing for inpatient treatment, and even evacuation/repatriation where necessary which is especially attractive for international corporations.
• Group life insurance/death in service – a valuable benefit for employees who will receive a lump sum if they die whilst working, which can be passed to their beneficiaries.
• Share scheme – by offering shares in a business you can enable employees to enjoy their own stake of the business, promoting ownership and offering a financial reward if the company performs well.
• Company pension – helping your team plan ahead for their retirement, and investing in their pension pot with additional contributions, can help instil a good financial planning ethic, and boost your staff retention too.

What to look for when seeking professional advice

If you are seeking professional advice, remember to ask for recommendations and referrals, and meet several companies to ensure you find the one which best fits your business. Engaging with the right company with your best interests at the forefront of their priorities is integral, and ensure that all associated costs are highlighted in the most transparent manner possible.