It’s easy to neglect your own finances when you’re focused on growing and nurturing your business. But creating a solid plan, where both your business and personal finances are working for you, could give you the confidence that your hard work will pay off. Here are five financial planning tips for business owners.
Make the most of pensions
Some entrepreneurs see their company as their pension, but this is a risky mentality to adopt. It is easy to assume that you will sell your business when you want to retire and the proceeds will be your pension. But what if it takes longer than planned to sell your business, or it isn’t worth enough to fund your retirement? Making contributions into a pension could help you build a more secure retirement, and it is also a very tax-efficient way to save. As the owner of your company, you can make your own tax-efficient savings into your pension, and you can also make employer contributions which are then deductible against corporation tax.
Protect against risks
You’re probably well-versed in insurance for your business premises and stock. But have you thought about insurance for what is arguably your most valuable asset – your people? As a business owner, you are your business. If you were to die or suffer an illness that meant you couldn’t work, your business could struggle to keep trading. Protection against death and illness is crucial for entrepreneurs. You should also consider protection for the other key people min your business. Key person protection and shareholder protection are just some of the solutions that could help your business stay afloat should the worst happen to one of your key members of staff or shareholders.
Plan your exit in advance
Exiting your business may seem a long way off, but thinking about your exit early on could reap rewards further down the line. If you want to sell your business in the future, then it pays to work out your ‘magic number’. That’s how much you would need from a sale in order to achieve the lifestyle you want. A financial adviser can help you work out how much your future lifestyle might cost, and whether the potential proceeds from a sale, alongside your pensions, savings and investments, are likely to be sufficient. They can also work with you to allow you to undertake new projects or invest in other ventures. If you are hoping to leave your business to your family, you might qualify for business relief, which may mean there is no inheritance tax to pay on the value of your company shares when you die.
Don’t put all your eggs in one basket
Your focus may be on making your business the best it can be, but it’s important to think about your overall investment strategy. As well as putting money into your business, consider investing across other asset classes, such as equities, bonds and cash. Diversifying your investments could help to cushion the blow to your long-term finances if your business doesn’t perform quite as well as you hoped. How much money you put into each asset class will depend on a range of factors, including how long you’re investing for, your goals and your attitude to investment risk. A financial adviser can help you build a diversified portfolio that suits your individual needs.
Surround yourself with experts
There’s a lot more to being a successful entrepreneur than just having a good idea. Your business needs to be built on solid financial foundations so it can grow to be a success. That’s why it’s important to surround yourself with a team of experts from day one. At RBC Brewin Dolphin, we can introduce you to the right people at the right stage of your journey – whether that’s venture capital firms, lawyers, accountants, or existing clients who may have been in your position before and who can share their experience. We’ve worked with thousands of business owners, helping them to gain clarity over their financial future and supporting them in making the right decisions. With us at your side, you can concentrate on what you enjoy the most and look forward to the future with confidence.