As a successful entrepreneur, it’s common to put all your energy and capital back into growing your company. However, although your business becomes more valuable, sometimes your personal wealth doesn’t necessarily grow at the same pace. We explore ways to keep growing your business without becoming cash poor.
Your money is trapped in the business
Many business owners’ income, wealth and future financial security are often heavily dependent on one business. They may look extremely successful on paper but have relatively little financial independence outside of their business.
Your company might be your greatest asset, the foundation of your future retirement and financial freedom. However, personal planning can easily get pushed down the list of your priorities. When you’re continually reinvesting to achieve growth, your business can be thriving while the lifestyle it was supposed to create keeps getting postponed.
Your balance sheet might look strong, but a sudden shock, such as a lost contract, illness or a market shift, can hit both your livelihood and household finances. Even the most successful entrepreneurs need a ‘Plan B’ outside of the company to protect personal wealth.
[h2] Turning business success into personal wealth
You don’t need to stop growing your business to build an independent personal wealth pot. Financial planning can help entrepreneurs decide how much to reinvest, how much to extract, and how to start building wealth outside of their company.
Investments, pensions, cash flow, protection and tax planning all become tools for a bigger objective: turning business success into personal wealth and freedom. But it starts with profit extraction, paying yourself properly and consistently to reward all your hard work.
Many entrepreneurs create a ‘director’s package’ with a modest salary to protect State Pension contributions with regular employer pension contributions. The package might also ensure dividends are within a target tax band. When approaching retirement, you might decide to extract profits through a business sale.
In the short term, you could consider creating a profit extraction policy. As an example, this might involve moving a fixed % of free cash flow each month into pensions and ISAs. You could agree to extractions when the company’s cash exceeds 3 months’ operating costs. During a high‑profit year and near year-end, using a lump‑sum of employer pension contributions could achieve Corporation Tax relief, while staying within pension rules.
Using pension contributions for profit extraction
Employer pension contributions are usually tax deductible against company profits if they meet the “wholly and exclusively” test. As a result, you could reduce your Corporation Tax bill, while funding your lifestyle.
As your contributions are free of Income Tax and National Insurance, they can be one of the most efficient ways to move company revenue into your own name. The annual pension allowance is currently £60,000 (tax year 2026/27), although it’s subject to tapered allowances and special rules. So, plan your contributions across the financial year and use carry forward where possible (using unused allowance from the previous three years).
You could also consider a SIPP (Self Invested Personal Pension) or SSAS (Small Self Administered Scheme) if you want more investment control and flexibility. However, you’ll need to understand the extra related complexity and costs with these types of schemes.
Protecting your business and personal wealth
Once you’re happy with your profit extraction plan, you can start optimising your personal wealth.
- Build a ‘Plan B’ pot outside of the business: It’s recommended to hold 12–24 months of household spend in personal cash or cash-type savings. This will give you greater confidence to make informed long-term decisions without risking your financial security.
- Use tax-efficient wrappers: ISAs can be useful for flexible and accessible, tax-free growth. Use pensions for long-term retirement savings. If you’ve met key allowances, you could use your investment portfolios for managing overflow cash. Automating your monthly contributions to ISAs and investment portfolios can help to ensure your personal wealth still grows when you’re focused on the business.
- Diversify your assets: You might not need to run multiple businesses. Instead, consider a diversified personal investment portfolio that compounds outside of your company. As an example, you could use Cash ISAs for short-term reserves, Stocks & Shares ISAs for long-term compounding, and a global diversified portfolio to reduce your investment risk.
- Aim to save at least 20-30% of your gross income: Whether you choose to split into savings and accounts or investments, this approach can help towards achieving long-term financial freedom. Aim higher if you started later or want to retire early.
- Protect what you’ve built: Put cover in place for key person, income protection and critical illness. This helps to ensure personal and business cashflow can survive in the event of serious illness or an unexpected event.
- Keep business and personal finances separate: With dedicated accounts and clean bookkeeping, you can make better profit extraction decisions.
Your Financial Adviser in Nottingham
As a business owner, your focus is likely to be on building something valuable in the present. But the earlier you start planning your profit extraction and personal investing, the more financial freedom you’ll enjoy today and in the future. Financial planning helps you grow your business without postponing your life, so your success gives you greater personal choice.
At Balance: Wealth Planning, our experienced team will help you create a financial plan that’s aligned to both your personal wealth and business growth. We’ll begin by carrying out a cash-flow planning exercise using sophisticated software to model your financial future.
Our highly qualified financial planners regularly advise entrepreneurs and directors at various stages of the business lifecycle. From tax-efficient planning to wealth extraction, we’ll help you achieve the lifestyle you originally wanted to create, while ensuring your business continues to thrive.
Are you an entrepreneur or business owner? Get in touch to start building your financial plan.
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