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7 personal finance tips for business owners

By Charlie Reading, owner and founder of wealth management specialists, Efficient Portfolio

Did you know that 80% of businesses fail in their first 5 years? Can recession, political turbulence, or even overseas influences be solely blamed?

The answer is elusive, world events no doubt play a part, see the recent and rapidly growing Coronavirus pandemic.

However, there are also several things which serve to add to the failure of businesses in general, simply because they are not considered.

Most people establish their own businesses to achieve freedom, pursue a passion or to receive the income they feel they deserve. When you consider these factors, it stands to reason that business owners desperately want, and in many cases need, their ventures to prevail, as their security and happiness depend upon their success. So, why do such a large percentage of business owners shirk away from their finances, when understanding and conquering these risks is fundamental to their future?

Charlie Reading
Charlie Reading

There are several things you can do to ensure a smoother, easier life when it comes to your own finances, here are just a few:

  1. Start with the End in Mind

You need to understand when your business is at its most profitable and when you should walk away from it. Knowing what your financial future looks like, by using Lifetime Cash-Flow Forecasting, can help you to make better decisions today. Where do you want to be in the future? What does success look like to you? If you haven’t ever given it a second thought, then perhaps now is the time.

  1. Get Your Money Working

It makes good business sense to keep money in a business, but the interest rates the bank pays in this day and age means that that money is falling in real terms, purely because inflation erodes it. If it is sat in the business it can still be invested, so that it is working harder for the future.

  1. If plan A fails, remember that you still have 25 letters left

Make sure that you have a back-up plan. Business owners who fail to have this safety net usually fail. Sound Financial Planning can help you devise a solution, for example making sure you have a diversified spread of wealth that could decrease your risk of financial failure. The old faithful analogy of putting all your eggs in one basket rings true with financial matters more than any other situation. Make sure you spread your financial wings, there are so many options when it comes to investment that you can usually experiment at a small scale before committing to larger investments.
Maximising your assets

Pensions are a very tax-efficient way of extracting profits, but there is that constant battle between funding them, and also leaving enough money in the business. Why not consider purchasing commercial property for your business to rent with your pension to maximise your assets and minimise tax? Taking a non-linear approach to investments, especially when it comes to pensions is sometimes worth considering.

  1. Protect Who Is Important

Your business would not be successful if it was not for the people who make it what it is. Looking after your key team members is one thing, but what if something happens to them like long-term sickness or even death? Protection strategies could ensure that if you lost a key person, you can still successfully operate as a business.

  1. You Are Not Immortal

Planning for the future is a must to business owners, even when it is thinking forward towards unsavory subjects like your own death. Unfortunately, you must think about it and make provision for your company and your family. If you do not, your business and loved ones could be left in the lurch. With a global pandemic like Coronavirus, those nearing pension age must be doubly concerned.

  1. Don’t Over Pay Tax

You must pay some tax as a business owner, but make sure that you and your business are running tax efficiently. Look at ways to extract profits tax efficiently to maximise your hard efforts, and ring- fence your money should the business ever fail. To not look at your tax situation can be incredibly short-sighted.