This content is for information and inspiration purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice please consult us here at Elmfield Financial Planning in Padiham, Burnley, Lancashire.
Financial planning has clear benefits for an individual. It helps you craft a strong retirement plan, establish financial protection for your family and maximises your take-home income through tax mitigation strategies. Yet there are also compelling reasons for business owners and directors to consider a financial planner’s help. Especially given the challenging year COVID-19 has posed to company revenues – along with the planned rise in corporation tax to 25% in 2023 – enlisting a professional to optimise your financial position could result in greater stability and savings in the future. Below, our team at Elmfield outlines some of the key areas where a financial planner can add value to a business. We hope you find this content useful. If you’d like to speak to an independent financial adviser then you can reach us via:
T: 01282 772938
Risk mitigation
When you have spent years and your own money developing a business, few thoughts are as heart-wrenching as the idea of it being destroyed by forces outside of your control (e.g. market conditions such as those under the pandemic). It is common for owners to not identify the full range of financial risks to their business, or to underestimate them. A common mistake is for small business owners to reinvest all assets straight back into their business (e.g. marketing) – rather than also committing funds to other key areas, such as a suitable portfolio of insurance policies in case of disaster. Larger businesses – i.e. Ltd companies – will also need to consider how the sudden loss of a key person or shareholder could impact their operations and future growth prospects. Here, you may wish to speak to a professional about establishing key person cover and shareholder protection to provide the funds needed in such a scenario.
Personal finances
For business owners, it can be a challenge to discern how much money you should extract for yourself – as personal earnings – and how much you should commit to the business. If you are looking to attract investors, for instance, then you likely want to avoid being seen as someone who cares about growing the business – not just using it as a “cash cow” to fund your lifestyle. How you take the money also matters. In particular, the balance between salary and dividends is a delicate one for owners. On the one hand, taking more dividends could result in significant personal tax savings since dividend tax bands in 2021-22 are lower than those for income tax. On the other hand, this could be seen as having an unstable income by lenders if you want to apply for a mortgage in the coming months/years. A financial planner can flesh out these issues with you and help identify a good way forwards in light of your goals and circumstances.
Retirement planning
Many owners see their business as playing a key role in their retirement plan; maybe by selling it and using the proceeds to fill a pension pot. Here, it is especially important to seek financial advice to plan tax-efficiently and reduce needless risks. In particular, you need to cater for the possibility that you may not be able to sell your business at the desired time – or for the price you hope for. You should also factor in pension rules such as the annual allowance. In 2021-22 limits you to contributing up to £40,000 into your pensions each tax year (or up to 100% of your earnings – whichever is lower). You can access unused allowance from the previous three tax years – potentially letting you commit up to £160,000 into your pension(s) – but even so, this is still unlikely to let you commit the full proceeds from a business sale. As such, it will be crucial to make use of a wide range of tax-efficient vehicles – such as ISAs to get the most out of your business for your retirement plan.
Succession planning
Depending on your goals and needs, you may wish to retain some level of ownership and/or involvement in the business after you retire – handing control over to successors (such as your children). Family succession planning, in particular, can be a useful way to mitigate future taxes on your estate (inheritance tax) – since you can get Business Relief of either 50% or 100% on some of an estate’s business assets, which can be passed on whilst you are still alive. Crafting an effective succession plan alongside your estate plan is usually a very complex process in which it would be easy to make costly mistakes. A financial planner can assist with navigating the rules, allowances and intricacies involved to give you full peace of mind and risk reduction.
Invitation
If you are interested in starting a conversation about your own financial plan or investments, then we’d love to hear from you. Please contact us to arrange a free, no-commitment consultation with a member of our team here at Elmfield Financial Planning in Padiham, Burnley, Lancashire.
Reach us via:
T: 01282 772938
