There are a lot of things to consider when you’re looking at financial planning for your business. Whether you’re a single director or you run a successful large business, there are many ways to maximise your tax-savings and help you build your own wealth in the long term. In today’s volatile economy, it’s always a sensible approach to keep a close check on your business finances, especially when you consider the collapse of corporate giants, such as Carillion and BHS. In this article, we share some practical tips to help you make better decisions when it comes to financial planning for your business.

Short and long-term planning

First, set some firm business objectives and Key Performance Indicators (KPIs), so you can measure your progress. For example, this could include setting targets to save on resources or systems to streamline your operations, which could increase your profit margin. Perhaps you need to improve your cash flow management and financial reporting, so you can stay one step ahead when it comes to monitoring money in your business. Next, consider your long-term plans. Do you have a vision for your business? Do you have any retirement plans? Do you want to sell the business when you retire? If so, what do you need to do before your business is ready for sale? These are all important factors to help you build a robust business for the long term.

Dividends vs. Salaries

The money you take out of your business to live on is another important factor. Due to the recent changes in company dividends, many businesses are seeking more tax-efficient ways to manage their profits. The tax-free dividend allowance was slashed by £3,000 earlier this year, which means if you earn more than £2,000 in dividends, you will be liable for tax on them. If you run a family business and two of you are director-shareholders, then you could reduce your tax liabilities by structuring your income between you carefully. Before you change the way you use your profits, always seek professional advice from your accountant, and it may also be useful to speak to our financial planning team, in case there are any other tax implications.

Pensions and Commercial Property

Did you know that some pensions – a Self Invested Pension Plan (SIPP) or a Small Self Administered Scheme (SSAS) – allow you to use funds (subject to rules) to purchase commercial property, which could be your own business premises? In simple terms, the property is owned by your pension then leased back to your business, which pays rent into the pension. Better than paying a third-party landlord, and it’s tax-deductible as an expense of the business too.

If you are interested in making the most out of your pension schemes in this way, please speak to one of our financial planners for more details.

Key Person and Shareholder Protection

• Do you rely on specific people to manage important aspects of your business? What would happen if a key person was to fall ill or pass away? What would be the effect on your business operations? It’s important to protect your business as well as your wealth. If you do have key people in your business – and this could include yourself – then it’s well worth considering Shareholder and Key Person protection.
• Key Person insurance – this is a type of Life and Critical Illness policy, which pays out a lump sum to your business, should one of your ‘key people’ pass away or they become critically ill and are unable to work. If your business relies on a highly effective salesperson or a financial director, this is a good way to protect your business from their absence and the effects on your operations. For example – the lump cash sum could be used to recruit someone else to manage their role.
• Shareholder protection – this policy varies from Key Person protection because as the name suggests, it only applies to someone who has shares in your business. This could be an important investor or maybe a spouse if you run a family-owned business. Should one of your shareholders pass away without this type of policy in place, company shares could be inherited by their next of kin, which can lead to difficulties, such as unwanted interference in your day-to-day operations by the deceased’s beneficiary.

Succession planning

This is often one of the key areas business owners forget about and yet, without any succession planning in place, your business could be at great risk. What if you were to suddenly pass away? What would happen to your business? Sometimes, a spouse is in line to inherit company shares, but very often that person does not have the experience or desire to run the business. Such situations can spell disaster, especially if you have multiple shareholders. We advise pulling together a plan of how your business will be managed after you pass away, and make sure any wills and trusts are updated accordingly – please get in touch for more advice on this.

The most important piece of advice we give to our clients is to plan for the future as early as possible.

If you would like advice on financial planning for your business, then please get in touch.