Financial planning for startup business owners
Running a business is a time-consuming endeavour but it brings great opportunities for you. From building a business for sale or having a business that can fund your desired lifestyle.
As a business owner I am sure you understand the importance of financial planning for your business, but are you also aware of the importance of this with your personal life?
Most of my clients started a business to provide financial freedom and financial security for themselves and their family. Financial Planning can ensure they take advantage of their business to achieve this.
Whether you're just starting out or looking to grow your business, having a solid personal and business financial plan is essential for success. Whether you're just starting out or looking to grow your business, having a solid personal and business financial plan is essential for success.
Here are some key steps you should take.
Build a financial life plan
It is important to make sure that you have a plan in place for the future. This means that you need to be able to manage your finances.
A successful financial life plan needs to look at the big picture.
• What you are looking to achieve.
• How long you want to work.
• What your plans are for the business and how this fits with your personal plans.
List your top three financial goals for 2023 and three actions needed to achieve them.
Then you can put in place a strategy to develop your financial life plan, underpinned by your business.
The correct structures & systems
You can make your financial life so much simpler, and less stressful, by setting up the correct structure.
For a start, ensure you have separate accounts for your business and personal finances so that they don’t overlap. Knowing your numbers and having a spending plan in place is a key area. This will let you know how much money you need to bring in from the business.
Consider separate accounts for the main areas of your personal spending
(FIXED/GENERAL/LIFESTYLE & FUTURE). Set up a monthly standing order for the right amount enabling you to track how much you are spending and identify any leakage that might be occurring.
Next, save your time and effort by automating your savings and investments. This will strengthen your financial position significantly.
In my opinion this is the most overlooked area when it comes to financial planning. It is so important to protect yourself and the business. What would happen to the business if you were to suffer a critical illness and be unable to work, or if one of your shareholders were to die. How would you purchase their shares?
We don’t like to think about the worst happening, but reducing risk needs to be fundamental to your planning.
As a business owner there are various insurances you should be considering from Relevant life plans to Keyperson & Shareholder protection for bigger businesses.
Grow your business
The key to a successful financial life plan will likely be determined by how well your business does. The better your business does the more money you have to spend, save, and invest. Cash is king, especially for startups, for being able to weather lean periods, grow the business and invest when necessary.
This is why financial planning shouldn’t be done in isolation, as there may be occasion where money is better reinvested into the business than into other avenues.
You may need help raising finances or looking for investors to help grow your business.
This needs to be done all year round taking into account your business and personal needs. Are you making the most of the allowances you have available?
Have you taken advantage of tax efficient protection policies such as Relevant Life to provide protection for your family?
This is where knowing the bigger picture and the lifestyle you want is also crucial. The purpose of tax planning is to help you achieve your business and personal goals which should complement your financial life, not control it.
Another overlooked part of financial planning, as many business owners will look to rely on selling their business to achieve their financial goals. This brings a great deal of risk as no one knows what the future will hold.
A pension may not sound exciting, but it is arguably the best vehicle for extracting money out of your business for your future. People can put up to £40,000 into a pension each year (depending on their earnings).
The pension can be funded directly from the business and there is no corporation tax to pay on pension contributions. Based on the 25% top rate of corporation tax this would mean paying £10,000 less corporation tax in 2023/24.
If you have unused allowances from previous tax years you may be able to contribute more than the £40,000.
Having a pension can also enable you to diversify your investments and protect assets should the business run into trouble.
There are numerous advantages to pension from being able to hold commercial property, and a pension should be a staple of any business owners financial planning strategy.
Get the right team behind you
Let’s be honest, you have enough on your hands running your business. You’re the expert and this is where your time is best spent.
By getting the right team in place you can ensure you are getting the best advice available, whilst crucially saving you time which can be spent on the business.
From banking, accounting, raising finance or financial planning, having the right team will pay dividends and ensure that you take advantage of the opportunities available.
Your entire team should work closely together to enable you to maximise the success your business delivers.
Regularly reviewing your financial life plan
As your life and business evolves so will your financial planning needs. For example, as the business becomes established you may want to consider succession planning or selling the business. Financial planning should become as important as your business planning, ensuring you are on track and adapting to what is happening in your business and your life.