Important Tips for Managing Your Business Finances

By Yolanda Varela, CPA, PFS, CPWA®, Esq. – Financial Planning Manager

Changes in demographics, economics, markets, regulations, and taxes can challenge business owners and impact their corporate finances. Knowing which opportunities and tools are available to tackle each challenge will help you better manage your finances.

Whether on your own or with the help of an advisor, you must design a strategy that allows you to meet your goals. A financial analysis of your business should include reviewing the following aspects:

1. Income and expenses
   1. Separate business finances from personal finances.
   2. Analyze costs versus profits for each line of business.
   3. Make sure you know your product/service’s break-even point. This is where cost and profit are equal and therefore there is no profit or loss.
   4. Review fixed and variable expenses to assess trends and identify which can be reduced or eliminated.
2. Debt
   1. Review debt balances, payment plan, and interest rates to determine if modifications are needed.
   2. Determine your ability to apply for credit at a personal and/or business level. The business’s legal structure can improve the ability to apply for credit.
   3. Analyze whether the value of an asset used as collateral has increased or decreased.
3. Liquidity
   1. Calculate the business’s liquidity.
   2. Identify an emergency fund.
   3. Maximize the return on capital beyond the emergency fund amount.
4. Investment assets
   1. Analyze the impact of market fluctuations.
   2. Establish or review the investment policy to clarify investment objectives and set an order of priorities within the strategy.
   3. Identify areas of opportunity.
5. Risk management
   1. Identify which risks can affect your finances and those of the business. Risks include disability, death, interruption of business operations, third-party liability, a key employee whose resignation could impact the company, and others.
   2. Review insurance policies and their coverage.
   3. Design a contingency or business succession plan to deal with events such as death, disability, divorce, and retirement, among others.
6. Family protection
   1. Calculate the value of your participation in the business as part of your assets. To that effect, having clear knowledge of the business’s real value is required.
   2. Identify who in your family depends financially on the income generated by the business.
   3. Make sure to have a business succession plan that aligns with your current and future personal financial needs and estate planning choices.

At Banco Popular we have a team of certified financial planning specialists who can help you design strategies to achieve your goals and objectives. Call us at 787-281-7272 to schedule an appointment.

Service offered by Banco Popular de Puerto Rico.

The financial planning services may represent a cost, which may vary depending on the scope of the contracted analysis. The information and general descriptions found in this article are designed to help you understand the concept of financial planning and some of the factors you should generally consider when evaluating a financial plan. Any description included is for informational and educational purposes and for your independent consideration only; it should not be regarded or viewed as advice or as a recommendation to take (or refrain from taking) any particular action. By providing this information, we assume that you can evaluate this information and the general descriptions found here to exercise your independent judgment.