3 common financial concerns business owners may have, and how financial advice can help

If you’re a business owner, the financial health of your company is probably never far from your mind.

The current economic climate is presenting businesses with new challenges, thanks to high inflation and rising interest rates. If you’re concerned about how your personal and business finances could be affected, now is the time to be proactive.

A financial adviser can tackle your concerns and help you plan for the future, saving you time, stress and potentially, money.

Read on to learn how to manage some of your most pressing financial concerns and find out how working with an expert could help.

1. Protecting your business

The coronavirus pandemic came as a shock to many business owners who were ill prepared to cope with the disruption it caused over a prolonged period. According to figures reported by the Guardian, one year of Covid lockdowns cost the UK economy £251 billion.

Protecting your business from potentially destabilising threats is now probably high on your list of concerns.

A financial adviser could work with you to create a bespoke plan that helps to secure your business and personal finances. If you’re not sure what kind of business protection you need, there are a few questions you might want to consider:

• How would your business cope if a key person was unable to work?

A key person is anyone in your business whose absence or inability to perform their role fully would seriously affect your company’s operation and future profits. This could be one person or several. For example, if you have only one employee who has the necessary technical skills to create your product or service, how would you cope if they suddenly became seriously ill or, worse, passed away?

Having adequate key person cover in place to resolve any issues that may arise because of an unexpected absence could enable your business to continue trading, for example, by covering the cost of recruiting someone with similar skills.

• What would happen if a shareholder was suddenly unable to fulfil their responsibilities?

If there are multiple shareholders in your business and one of them becomes ill, retires, faces bankruptcy, or dies, this could disrupt the ordinary running of your business and negatively affect profits.

Having adequate protection in place may help you to stay in control of the business and maintain positive customer relations even if a shareholder unexpectedly leaves. For example, shareholder cover could give you the funds necessary to buy back the exiting partner’s shares.

• Do you and your family have enough savings to cover your missing income if you become ill?

If you rely on your income from the business to run a home and fund everyday living expenses, an unexpected and prolonged period of illness may lead you into financial difficulties.

This could add stress at an already challenging time.

Ensuring that you have adequate cover to keep some money coming in while you are unable to work will give you peace of mind and vital financial support when you need it.

Critical illness cover and income protection insurance could help you to keep your business and home running while you are unwell by providing a lump sum or an income.

A financial adviser can work with you to select the most suitable protection options for your unique corporate and personal needs. Having robust protection measures in place could provide you, your business, and your family with valuable security and peace of mind.

2. Extracting money from your company

If you have a limited company, there are three ways you can usually draw earnings. There are different tax implications for each option:

• Director’s salary

You may regularly take money out of your business as a director’s salary. If you take a very low annual salary that falls below the £12,570 (2023/24) Personal Allowance threshold, you may be eligible for the State Pension and benefit entitlements without incurring a personal Income Tax liability or paying any National Insurance contributions (NICs) on these earnings.

• Dividends

If you are paying yourself (and any other directors) a small salary, you may well be topping this up with dividend payments. This can be a tax-efficient way of taking profits from your company as Dividend Tax rates are lower than Income Tax rates, and you can also use your annual Dividend Allowance to take some dividends tax-free.

• Director’s loans and pensions

If you choose not to extract money from your company as either a salary or a dividend, you could take it out as a director’s loan. If you do not repay the loan within a certain period, you may incur Corporation and Income Tax.

One of the most tax-efficient ways of extracting money from your business is through pension contributions. There will usually be no Corporation Tax, Income Tax or NICs to pay on any pension contributions that fall below the Annual Allowance of £60,000 (2023/24).

That said, you may have a lower Annual Allowance if you are drawing a large salary from your business, or if you have already flexibly accessed your pension.

The most tax-efficient way to extract money from your business will depend on your specific circumstances and the tax rates and bands for the year. A financial adviser could help you to make the most of tax allowances and reliefs, adding significant value to your business.

3. Effective succession planning

According to recent research published by IFA Magazine, almost half of business owners have no exit strategy and over a third have no succession plan. Yet, on average, owners plan to leave their business within the next seven years.

There’s a lot to think about when planning to leave your business, such as whether you want to sell it or pass it on to a family member, deciding how this transition will be managed, and so on.

Working with a financial adviser to put exit and succession plans in place well ahead of the time you intend to leave can help to smooth your exit. Making the most of an adviser’s expertise could save you time, money, and stress in the long run.

Read more: 4 key steps to successfully transitioning from business ownership to retirement

Get in touch

If your financial concerns are keeping you up at night, we can create a bespoke plan that helps to secure your personal and business finances.

Email enquiries@rosebridgeltd.com or call 01204 300010 to speak to us today.

Please note

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The Financial Conduct Authority does not regulate tax planning.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.