HOW ENTREPRENEURS CAN BUILD A MORE SECURE FINANCIAL FUTURE

YOUR BUSINESS SHOULD IMPROVE YOUR PERSONAL FINANCES – IS IT? IAN COOPER FROM WEALTH MANAGEMENT COMPANY BREWIN DOLPHIN EXPLAINS HOW YOUR PLANS AND GOALS ARE THE CORNERSTONES OF LONG-TERM SUCCESS to neglect. Being clear about your personal goals and having a robust financial plan in place are two of the cornerstones to long-term success as a business owner.

Understanding your goals

Whether you are a new or seasoned entrepreneur, relating what you’re doing back to your business and personal goals acts as an important anchor when making decisions. Your goals aren’t just a destination, but should also influence everything you do as you build and grow your business.

Britain is a nation of entrepreneurs, with hundreds of thousands of us running small businesses and following our own dreams. The number of new startups surged during the pandemic, with a recordbreaking 772,000 new businesses registered at Companies House in 2020 – a 13% increase on the previous year, according to Centre for Entrepreneurs.

While running your own business can be exhilarating, it can also be all-consuming. When you’re dealing with the nitty-gritty of invoices, marketing, regulation, and technology, it is sometimes easy to lose sight of why you are building and growing your business. Ultimately, your business should improve your personal finances, yet this is an area entrepreneurs tend

So, ask yourself, why did you decide to set out on your own? Was it for money, freedom, fame, retirement income, a sense of satisfaction, or something else? Moreover, think about what is important to you. Is it to become the next James Dyson? To enjoy more time with your family? To build a more secure future?

Your business and personal finances may be woven together more tightly than you realise. If, say, you’re growing your business to create a more financially resilient retirement, then in addition to looking for business growth opportunities, you should also be thinking about pension planning. Concentrating on your business at the expense of your personal finances could have unintended long-term consequences.

An adviser is best placed to offer support on structuring your finances as an entrepreneur but, to help you get started, here are some of the questions to ask yourself.

1. WHAT IS YOUR INVESTMENT STRATEGY?

Your focus may be on making your business the best it can be, but it’s important that you don’t keep all your eggs in one basket. Investing in other assets, such as equities and cash, helps to protect your finances in case your business fails, or you sell it for less than you had hoped.

ISAs can be a great way of saving and investing for your future because income and gains are tax free. However, with interest rates on cash ISAs currently very low, and inflation set to rise above 4% next year, you could find that the ‘real’ value of your money is eroded over time. In contrast, an investment (‘stocks and shares’) ISA gives your money the chance to grow over the long term. Although the stock market goes down as well as up, history shows that over periods or ten or more years, it performs more strongly than cash and above the rate of inflation.

2. ARE YOU PREPARING FOR YOUR RETIREMENT?

Some entrepreneurs see their company as their pension, but this is a risky mentality to adopt. It is easy to assume you will sell your business when you want to retire, and it will be your pension. The problem is your company may not prosper as well as you had hoped. Your business might not be worth enough to fund your retirement or, worse, you could be left with no retirement savings at all. Making contributions into a pension will help you build a more secure retirement, and it is also a very tax-efficient way to save. As the owner of your company, you can make your own tax-efficient savings into your pension, and you can also make employer contributions which are then deductible against corporation tax.

3. HOW ARE YOU MANAGING RISKS?

Business owners tend to be well-versed in insurance for their premises and stock, but often neglect insurance for what is arguably their most valuable asset – their people. As a business owner, you are your business. If you were to die or suffer an illness that meant you couldn’t work, your business could be finished. Protection against death and illness is therefore crucial for entrepreneurs.

You should also consider protection for the other key people in your business. Key person protection and shareholder protection are just some of the solutions that could help your business stay afloat should the worst happen to your staff.

4. HAVE YOU THOUGHT ABOUT YOUR EXIT?

If you’re just starting out, your exit will seem a long way off and most likely be at the bottom of your priority list. But thinking about your exit early on can reap rewards in the future. For example, if you are hoping to leave your business to your family you might qualify for Business Relief, which may mean there is no inheritance tax to pay on your company when you die.

If you want to sell your business in the future, then it pays to work out your ‘lifestyle number’. That’s how much you would need to make from a sale in order to achieve the lifestyle you want. Consider who the buyers for the business might be, whether it could be a rival or a large player in the same area of business. Think about succession planning and whether you need to find good people to carry on, or whether the business would lose a lot of value without you running it.

Also, remember an exit doesn’t need to be a sale. It could even be an IPO – a listing on the stock market which gives you liquidity and access to shares – although you would need to build up a sizeable company to make this viable.

Surround Yourself With Experts

There is a lot more to being a successful entrepreneur than just having a good idea. Your business needs to be built on solid financial foundations so it can grow to be a success.

Financial planning for entrepreneurs can be a lot more complex than for other people, as you also need to think about how to achieve both your business and personal goals, how to compensate yourself, and what your exit strategy looks like. Given what is at stake, this is often best left to the experts. A financial adviser, for example, will look at your business and personal financial situation as a whole and then develop a comprehensive financial roadmap that sets out what you want to achieve and how to get there.