Running your own business is supposed to be a lot of fun, isn’t it?
The successes are all yours, and so are the failures.
You think about it before you go to sleep, and just after you wake up in the morning.
You have your morning coffee with it, and dedicate your waking hours to nurturing it. In return it lets you go on fancy holidays and pay for School Fees. Your lovely home? It pays for that too.
It may have already done these things.
The success of your business is of course inextricably linked to the success you enjoy in life.
So are you being smart about how you use your business to make a real difference to your very own Financial Plan?
Below are our 4 top tips for being smarter with your business.
1: Be Tax Efficient and Look After Your Pension At The Same Time
We all dream of a capital event – a purchaser makes overtures through a broker, and we agree a lucrative capital exchange which sees us sail off into the sunset, a good 10 years before all of our mates.
In reality, this strategy is risky. We might not sell, or if we do it might not be for that life-altering sum.
Sensibly, we know we need to put funds away during our working lives. We need to feather our nest because at some point, we will want to take risk off the table.
Using the profit your business makes to fund a pension is one of the most efficient strategies available to you.
Any contributions made come off the top line and act as a cost to the business. This saves the business Corporation Tax, and had you decided to pay it out as income, a significant portion of National Insurance too.
You’re moving company profit into your individual name, ready to support your lifestyle in retirement (and maybe to provide an inheritance for the kids).
Of course, while the tax benefit is appealing, the more important effect is that you will begin to build up that nest egg so that your dependence on the success of your business diminishes over time.
With the benefit of a solid financial base, clearly you will make better, less emotional decisions when it comes to selling your company.
2: Try To Manage Your Downside – what happens if the worst happens?
Your success is dependent on the success of your business. So what is the success of your business dependent on?
Is it that key member of staff? How would you cope if they weren’t here any more?
Is the business dependent on you? What happens to the value of the business if you were to suffer an early demise? What would happen to the value of the shares you’d pass to your family?
Are you a co-director, and have you considered what might happen should your equivalent not be here any more? Would you like to be in business with their family?
These are questions you have probably thought about in the most fleeting of moments, then discarded as bad news almost instantly.
We don’t blame you. Positive thoughts tend to be much more productive.
But the answers to these questions will have a profound impact on the security of your business, and therefore by extension the security of your income, your asset base, and your ability to generate a capital sum in the future.
So examine the “what ifs” from every angle, discuss it with the relevant stakeholders, and make a plan. Plan, Plan, and Plan some more.
Oh, and remember to update that plan every couple of years. Life moves quickly.
3: Keep More Of My Profits, and Make A Difference At The Same Time
A month which certainly isn’t a perk of being self-employed is of course January, the month of the Tax Return.
Of course, you’ve planned for it with your Accountant, you’ve set funds aside, and it shouldn’t be a surprise amount.
But that doesn’t make the cheque any easier to write.
The good news is that there are a number of options available to you to reduce this figure, and they’re considered to be relatively basic planning tools.
The barrier to entry, usually, is knowledge of the rules.
The government are keen to encourage people like you to funnel capital into areas which the government deem “useful” to UK Plc. Investments which create jobs, tax revenues and growth.
The problem is how to make sure they’re right for you.
You should absolutely speak to your Accountant who will be able to illustrate the potential effects of a strategy like this.
Building these types of investment into an overall Financial Plan can have huge benefits for the individual.
4: What Am I Paying For That My Business Really Should Be?
When you cut your teeth in a Corporate environment, they probably offered you a suite of benefits with the intention of retaining your services.
No doubt this included a Company Pension Scheme, and something called Death In Service. If you popped your clogs while in their employment, your family would benefit from a Life Insurance payment, often equal to four times your basic salary.
So now you’re the captain of your own ship, why are you paying for Life Cover from your own pocket?
Did you know that there’s a piece of legislation (buried in one of the Finance Acts) which means you can pay for your Life Cover through the business, and usually the premiums are considered an allowable expense?
If you’re paying the tax on your earnings to then pay the premium for your Life Cover, the good news is that by using a Relevant Life Plan instead, the premiums could be significantly cheaper.
Definitely speak to your Accountant – stats show there’s a 50/50 chance they’ll have heard of it – and if they haven’t heard of it, we’ll happily educate them on your behalf!
As always, feel free to get in touch for a 15min chat about your goals and how we can help you achieve them. After all, a goal without a plan is just a dream.
- Tax treatment varies according to individual circumstances and is subject to change.
