Why a financial plan is essential for business owners
You may have noticed that, here at SK, we’re big on encouraging people to have a financial plan. But when it comes to those of you who are business owners, a plan is an absolute essential, especially if you really want to get the most out of your asset and optimise your Corporation Tax.
There are innumerable options for how you can combine your business with your personal finances in an efficient and money-savvy way. The key to getting this right and for it to be a truly symbiotic relationship is, if I’m honest, to get someone else to manage everything for you. Having your financial planner concentrate on this plan means you can fully commit yourself to the business, because the better and more comprehensive the plan is, the more plates you could end up spinning and you don’t need that.
So, what are the areas business owners should focus on when it comes to setting up their plan?
Protecting yourself and your business against risk
The first step of any good plan is to make sure you ‘protect’ your current position and as a business owner it’s really important to understand what the business can be doing to protect you so you don’t have to pay for it personally. There may be more of these options than you think, such as relevant life assurance, private medical insurance and executive income protection. All of these options can potentially be paid for by the business on your behalf, freeing up your take-home income for other things.
Of course, it is not just about protecting yourself, you can build protection for the business itself into the plan too. This could be Shareholder Protection, for example. This ensures the business has the funds available to retain its desired ownership and the shareholder involved has the capacity to receive the full value of their share in the business if anything were to happen. Meanwhile, Key Person Cover ensures the business is protected if a key individual is unable to perform their role for health reasons. Understanding and identifying any risks to the business is just as important as understanding any personal risks.
A chance to maximise your pension contributions
Pensions are another fundamental part of the plan. While it may be obvious that you need to take care of your ‘future self’, it can be difficult to predict how the business is going to perform in the coming months, especially against the current economic backdrop. As a result, it can be difficult to know how much to contribute. With clients in that situation, a neat solution is to simply collect the monies invested at the end of the firm’s financial year as a single lump sum when the firms’ performance is known, limiting any ongoing risk to the business. Things like this make running the business and managing cash flow more predictable, allowing you to properly maximise how and when you invest your money.
Corporation Tax: Offsetting costs to bring down the bill
As well as understanding the personal value associated with taking the above steps we could not talk about this kind of financial plan without also highlighting the potential tax benefits involved. With the recent rises in Corporation Tax now locked in, the importance of these benefits in mitigating those potential tax bills cannot be ignored. Many of the above costs can be offset against tax, significantly reducing the net cost of it to the people taking the biggest risk of all, the business owners themselves. With the current fiscal policy, any way that tax can be reduced as opposed to it being increased is always a welcome conversation for us to have.
If you would like some help figuring out how this might work for you and your business, then please do get in touch.