Business Planning

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Business planning benefits

By | Business Planning

Why business owners need to find time to focus on financial planning

As anyone who runs a business will appreciate, time is a precious commodity. Making strategic decisions, effectively managing staff, and building relationships with customers and suppliers mean that business owners rarely have time to consider the important role that sensible financial planning can play in both the success of the business and the long-term financial security of key individuals.


Profit extraction via pensions

Whilst the long-term goal is to make the business more successful over time, business owners need to make sure that they don’t ignore their personal finances and in particular their retirement plans. By making regular pension contributions, business owners can save for retirement in a tax-efficient manner. Depending on how the business owners are remunerated will determine the most tax-efficient way that pension contributions are made, and we recommend business owners seek independent investment and accountancy advice to choose the most appropriate route. Pension planning can be particularly useful when business owners near retirement, providing a tax-efficient method of extracting profits from the business.


Protecting your interests

In our experience, many business owners, shareholders, and key personnel are running huge risks by not holding adequate protection against the worst-case scenario. The death or serious illness of a business owner or key individual in the business could have devastating consequences for the future success of the business and its employees.

A situation we commonly come across is where a shareholder in a small business leaves shares in the business to their spouse on death. However, the spouse may not have any interest in being a shareholder in the business, and would prefer to sell the shares in the business to other shareholders. This would involve other shareholders needing to raise finance to buy the shares, which often can be prohibitive. By arranging shareholder protection in an appropriate manner, life assurance would be arranged in a tax-efficient way to provide the necessary funds for the surviving shareholders to buy the shares from the spouse.

Another common risk that is often ignored is the potential for death or serious illness of a director, owner, or key member of staff, without whom the business would face significant risks to profitability and success in the future. By arranging appropriate cover, in the event of ill-health or death of the key employee, policy proceeds are paid directly to the business to help replace the key person and help cover any profit loss.


Benefits to retain key staff

A crucial component of any successful business is the ability to recruit and retain key staff. As an indirect result of the pandemic, some industries have faced an imbalance between vacancies and applications, exacerbating the need for employers to stand out from the crowd. One method of achieving this is to offer key employees a strong package of employee benefits, which can be arranged in such a way that they are tax-efficient for the business. Death in Service, essentially a group life policy, is a cost-effective way of providing life assurance for key staff. Additionally, arranging a Group Private Healthcare policy is another attractive benefit that can work to the benefit of the employee, and also the employer, as a way of ensuring that staff return to work as quickly as possible after suffering ill-health.

Another valuable benefit is for business owners to arrange enhanced pension arrangements for key personnel. Whilst many firms choose to use a Master Trust arrangement such as NEST or People’s Pension to provide their employees with a pension under the auto-enrolment legislation, these schemes tend to offer employees limited choice and can be expensive. By providing key staff with bespoke pension advice, and setting up a Group Personal Pension or Individual Pensions, this can provide staff with a greater range of options and competitive terms.


Making company cash work harder

Many successful firms tend to carry large balances in cash, and if these accumulated funds are not earmarked for any business purpose, leaving surplus funds on a company bank account will mean that funds are left unproductive. In particular, given the current levels of inflation at present, cash is generally producing a negative real return (i.e. taking inflation into account) of around -5% per annum. Business owners should consider funds that truly are surplus to immediate requirements (but might be required in the longer term business strategy) and consider alternative options that aim to keep funds productive. This can be in the form of term deposits or other interest-bearing cash, or a cautiously managed investment portfolio, aiming to produce positive returns over time, with lower levels of volatility. Business owners should always seek advice before proceeding, as investing significant sums could have implications in respect of the trading status of the company; however, we will be able to work with your company accountant to avoid any adverse consequences.


How we can help busy business owners

It is our experience that business owners generally appreciate the benefits that independent financial planning can bring, but rarely have the luxury of time to consider these options in more detail. That’s where FAS can assist. As a Chartered practice, we can provide a comprehensive service, considering a company’s protection needs, implementation of employee benefits packages, and reviewing business owners’ personal finance, thus avoiding the need for business owners to deal with these aspects individually.

If you are interested in speaking with one of our experienced financial planners to review your business needs, please get in touch here.


The value of investments and the income they produce can fall as well as rise. You may get back less than you invested. Past performance is not a reliable indicator of future performance. Investing in stocks and shares should be regarded as a long term investment and should fit in with your overall attitude to risk and your financial circumstances.

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Why it pays to put the spare cash in your business to work

By | Business Planning

No business owner can afford to keep on an employee that doesn’t pull their weight, and the same is true for your working capital. If you’re a business owner with a significant chunk of cash sitting in a bank account, now might be the right time to start making that excess money work harder on your behalf, without taking too much risk.


Having a lot of cash at hand is considered a positive state of affairs for any business, and a sign of a company in good health. Not only does holding large sums of balance sheet cash demonstrate that the company itself is well capitalised, but it can also give the business owner and any major shareholders valuable reassurance that the business is positioned to face any challenging times in the future.


Is cash still king when it’s not earning its keep?

While it makes sense for the business to retain enough liquidity to see it through any potential issues, excess working capital does present many business owners with a dilemma. That hard-earned capital is most likely to be just sitting idle in the business bank account, not generating any meaningful kind of return.

During periods when interest rates are low and inflation is starting to creep up, such as now, having too much capital held on deposit starts to become worryingly expensive. Moreover, for smaller businesses, particularly family-run firms, having too much cash in the bank could potentially have a negative impact on your business and your longer-term wealth. It could mean paying higher taxes or alternatively, missing out on claiming valuable tax reliefs. Therefore, getting the balance right when it comes to managing your excess business cash could prove very significant in the years to come.


Tax planning considerations – Business Relief

In our experience, lots of smaller businesses, and especially family-owned businesses, benefit from being eligible for Business Relief. First introduced back in 1976, Business Relief (BR) makes it easier to pass on the ownership of a business from one generation to the next. As the shares of companies that qualify for Business Relief are exempt from inheritance tax, this means the shares can be passed on without triggering an inheritance tax bill that could potentially force the business to be sold.

However, in situations where the company is found to be holding cash in excess of its business needs, HM Revenue & Customs can restrict the amount of Business Relief available to shareholders upon the death of the business owner. This could result in shareholders facing an inheritance tax charge on the value of their company shares and reduce the amount of the estate the business owner intends to pass on to beneficiaries.


Tax planning considerations – Business Asset Disposal Relief

There are other issues that business owners should be aware of. For example, Business Asset Disposal Relief – which used to be known as Entrepreneurs’ Relief – is a government-approved incentive that makes it possible for business owners to pay a reduced rate of capital gains tax (as low as 10%) when they choose to sell all or part of their business.

Should the company be holding a large amount of surplus cash or other non-trading assets when the shares in the business are sold, or when the company ceases trading, this could result in HM Revenue & Customs restricting the availability of Business Asset Disposal Relief and trigger a larger capital gains tax bill.

So, there really are several good reasons why it makes sense to rethink the amount of spare capital your business is holding onto and think about ways to make that cash work a bit harder.


What we can do

At Financial Advice & Services, we work closely with business owners to provide a range of services based on the highly individual needs of their business. While recognising the importance of keeping an appropriate level of cash within the business, we can use our investment and tax planning experience to invest significant surplus funds more productively. As well as recommending investment strategies that aim to produce a healthy rate of return without taking on excessive risk, we can also take a closer look at your individual tax status, and work out which tax reliefs are valuable to you. We can then suggest investment products and services that will allow your business to invest its spare capital in ways that ensure these valuable reliefs are not lost.

At FAS, we know from our conversations with business owners that cash gives them a much-needed cushion during difficult times. So, we understand the need to not take any undue risks. But for many businesses, we think it makes sense to make sure every penny earned by the business is being put to good use, and earning a positive return, rather than sitting idle.

If you are interested in discussing tax planning strategies or business investment options with one of our experienced financial planners at FAS, please get in touch here.


This content is for information purposes only. It does not constitute investment advice or financial advice.

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How to Enhance Your Business Protection in 2020

By | Business Planning | No Comments

Business protection is all about preparing for the worst, so your business has the best chance of reaching its full potential. It can help you to keep trading and financially afloat should things go wrong, which, in light of the COVID-19 national lockdown, things broadly have. In April 2020, most businesses remain closed under Government guidelines, with airlines grounded and sectors such as hospitality and retail suffering heavy financial losses.

Of course, no business owner could have predicted the effect COVID-19 would have on the economy. Yet for some businesses that are continuing to keep going during the crisis and for those that will resume post lockdown, there are still things that can be done to enhance your business financial protection.

Here is our short guide for business owners.


Protection & business type

Financial protection can come in many forms depending on your business goals, strategy, size and stage in its life cycle. In February 2020, there were nearly 5.9m private businesses across the UK; the vast majority (99%) comprising small or medium-sized businesses (SMEs) with under 250 employees. When added together, these businesses form a huge part of the UK economy, employing 16.6 million people.

There are many factors which keep businesses afloat, such as product development and strong distribution networks. However, a crucial (and often neglected) factor is business protection infrastructure. In other words, what would happen to your business if either you, or another key person, could no longer work because they became seriously ill, or even died?

This has always been an important question for a business, but in light of COVID-19, it has become even more poignant. None of us knows what’s around the corner, even if we do not believe the worst could happen to us or someone we know. Unfortunately, we are able to recount cases from our own experience, where a company took out protective cover, and only a few years later a Key Person within the organisation (e.g. the Director) sadly passed away.

Unfortunately, financial protection cannot prevent tragedy but it can help soften the blow. We can help you identify the weak points in your protection plan and find the best solution for your situation.


Succession planning

Whilst all businesses are different, one common issue centres around succession planning; i.e. who will take over should the Director/owner die, or suddenly become incapacitated (e.g. through a serious accident). At FAS, we can work with your Accountant and Solicitor to help you craft both a short term and long term succession plan. The first plan is most important, as it assists in addressing the more pressing issues that could occur if the business leadership is severely disrupted. The second, however, involves developing a tax-efficient plan to eventually transfer leadership to new management, usually after the current Director/owner reaches their intended retirement date. This might take the form of handing the reins to a trained family member, appointing an external successor or even business disposal. Regardless of the situation, careful planning is needed to ensure livelihoods are protected and liabilities are addressed.


Key Person protection

In the case of a sole trader, one of the key protective measures you might want to consider is Life Insurance. After all, since your business largely rests on your own shoulders, if you die suddenly then it will be considered as part of your Estate for Inheritance Tax (IHT) purposes. A lump sum from a good Life Insurance policy can help ensure your beneficiaries have the liquidity they need to wind up your business or take up the reins whilst dealing with any debts in your name.

For joint partnerships and Limited Liability companies, however, things work differently due to the share structures involved. Suppose one business partner in a joint partnership dies; what happens to their shares? Typically, these will pass to their beneficiaries, usually a surviving spouse. Unless you (the surviving business partner) have the funds and written agreement in place to ensure you can buy these shares, your business will run the risk of being held back by a stakeholder who has no interest or experience in stepping in to take the deceased’s place.

Once again, this is where our experience in dealing with such matters can really help. We can help you come to a binding agreement with your business partner which addresses the above scenario, and releases the funds you need to buy the deceased’s share(s) or we can assist with the arranging of a Key Person protection policy to guard against the loss of a key person. The right type of cover can help release the funds you need to help meet commitments, without rocking the entire ship.

If you are interested in discussing any of these aspects in more detail, please do give us a call.

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Financial Planning for Business Owners: A Short Guide

By | Business Planning | No Comments

Financial planning can be a challenge when simply dealing with your own personal wealth and finances. Trying to tie your pension, taxes, protection and estate planning into one coherent strategy, for instance, required considerable thought and ongoing review. For business owners, however, things can be even more complex; often blurring the lines between professional and personal financial planning.

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Simple Pension Tips For Self-Employed People

By | Business Planning

As Financial Planners servicing Kent & the South East, we have witnessed first-hand the steady rise in self-employed people looking for financial advice and tax planning. In fact, across the UK, the total number of self-employed has risen from 3 million to 5 million people since 2001. This is an exciting trend but it poses a lot of challenges when viewed through the lens of pensions.

Whilst employed people in the UK are now compelled to contribute towards a pension via Auto-Enrolment, no such obligation currently exists for self-employed people. The worrying result is that many of these people are failing to adequately prepare for their retirement, instead relying on the insufficient provisions of the State Pension.

Self-employed people face unique challenges when it comes to saving for a pension, as well as some great opportunities. On the one hand, irregular income can make saving for a pension quite difficult, and you have no employer contributions topping up your own contributions.

On the other hand, the fact that you are building a business gives access to a set of assets that could set you up for the future. Indeed, it is not out of the question that these assets, when handled correctly through careful financial planning, could pave the way for a comfortable early retirement.

Know the limits of the State Pension

Many of the self-employed people we speak to in and around Kent & the South East, have unrealistic expectations when it comes to the State Pension. Many people assume the Government will look after them in retirement but unfortunately the amount provided through the State Pension is simply not going to stretch far enough for many.  Indeed, with rising life expectancies and a growing elderly population, means that the State Pension system is likely to come under more strain in the years ahead

This makes it even more crucial for self-employed people to work with a Financial Planner to ensure they are saving adequately for their retirement. Presently in 2018-2019, the new State Pension will give you up to £164.34 per week. Even if you assume you will have paid off your mortgage by the time you retire and other expenses reduce, this is still far too low for most people to live on each month. Current figures estimate that about 45% of self-employed people, aged between 35 and 55, do not have a private pension to supplement their State Pension.

Know your tax reliefs

Self-employed people are at a disadvantage when it comes to pensions, in the sense that they have no employer to top up their contributions. However, they can still benefit from an important tax relief when making contributions. So, for every £100 you put into a pension the Government will effectively top it up by £25. This assumes you are a Basic Rate taxpayer. If you are in the Higher Rate bracket in England, Wales or North Ireland, then you can claim back an additional £25 for every £100 you put in.

Know about the different pension types

As a self-employed person, you do not benefit from a Workplace Pension Scheme but you do have a range of options when it comes to Personal pensions. By arranging your own Personal pension, you will have greater control over the choice of provider and where your funds are invested. It is important to be aware that there are different types of Personal pensions, such as Stakeholder Pensions and Self-Invested Personal Pensions (SIPPs). The former tend to have lower charges with limited investment choice, whilst for the latter have a wider range of investment funds to choose which costs more.

It is sensible to explore your options in detail before commencing contributions, especially if you are unsure which type of pension arrangement is most suitable for your needs. Our Financial Planners will be able to provide you with impartial advice and help you plan for a comfortable retirement.

Be aware of the limits

When you are self-employed you have the advantage of being able to decide your own contribution levels. However, just like everyone else, there is a limit to how much you can contribute and also receive in terms of tax relief. There are two limits in particular that you need to be aware of. Firstly, the ‘Annual allowance’ which limits the amount you can contribute to your pension arrangement in any one year. For the tax year 2018-2019, the maximum you can contribute to a pension and receive tax relief is £40,000. Any contributions above this amount cannot receive tax relief.

Secondly, the ‘Lifetime Allowance’ is the total amount you are allowed to save in pensions whilst receiving tax relief. In the 2018-2019 tax year, you can have up to £1,030,000 in your pension savings; any amount above this will not be able to receive tax relief. If you are fortunate enough to have more than this in pension savings, it is important to be aware of the implications. For instance, any amount over the Lifetime Allowance (LA) that you withdraw as a lump sum will be taxed at 55%. If you decide to draw funds over your LA as a regular income, this will be taxed at 25%.

If you think your pension savings might one day exceed the then current Lifetime Allowance, we would encourage you to speak to one of Financial Planners to talk through your options. With clever planning, it may be possible to avoid paying unnecessary tax on your pension savings and ultimately bequeath more to your beneficiaries.