Start-Up to Exit Strategy: Financial planning for business owners

In the early days, most business owners don’t pay themselves much – you’re too focused on reinvesting in the business. But as things grow, you’ll need to start thinking about how to balance your salary with dividends and other income.

This is where accountants and financial planners work together. While your accountant focuses on maximising your business income, a financial planner looks at the whole picture – personal income, other sources of money, and your long-term financial health. Together, we can help you figure out how to take the right income at the right time without hurting your business.

No one wants to think about worst-case scenarios, but planning for them is essential. If a key person in the business, like a director or senior employee, can’t work due to illness or worse, the survival of your business may be at risk.

Given the impact this could have on your personal financial plan, it’s important to look at protection strategies. This will often involve products that are designed specifically to mitigate those types of risk. For example:

• Key Person Cover: This protects the business if a key employee or director becomes seriously ill or dies.
• Shareholder Protection: If a shareholder dies, this can provide the funds to buy their shares – and help prevent dispute with their beneficiaries.
• Relevant Life Cover: Similar to death-in-service benefits for employees, but specifically designed for small businesses.
• Executive Income Protection: If a key employee can’t work for a long period, this can help cover their salary and keep them on board.
• Loan Protection: This provides businesses with the funds to repay commercial loans if a business owner dies or become critically ill.

Each of these types of protection is designed to keep the business running smoothly, and protect your financial interests – even when life throws a curveball.

It might sound like a good problem to have, but too much cash in a trading company can actually jeopardise your business’s trading status. There are ways to manage this, to ensure your business is protected and your personal finances are factored into the solution.

For example, we might explore whether the cash should be invested back into the business, or elsewhere. We may even consider setting up a separate company that could benefit family members at a later date, should that align with your personal goals.

By looking at your whole financial situation, a good financial planner can help you keep the business in good standing while also preparing for the future.

As the business grows, the question of how and when to take money out becomes more important. You want to make sure you’re doing it in the most tax-efficient way, and that it fits with your personal goals.

For example, we’ll look at how much money you actually need, when you need it, and the best way to get it out of the business without paying more tax than necessary.

It’s also important to be mindful of inheritance tax when taking money out, as making the wrong decision could result in a significant tax bill for your beneficiaries.

Whether you’re looking to pass the business down to family or planning to sell, thinking about your exit strategy early can make all the difference. Many business owners see their company as their retirement pot, but without careful planning, a big chunk of that pot could go to the taxman.

Here are a few key questions I often ask business owners upfront, as these inevitably shape the approach we take:

• Do you own any commercial property? Depending on your specific circumstances, it could be a way to invest for the future.
• How do you make sure the business you’ve worked so hard to build goes towards your retirement rather than being swallowed up by taxes?
• What does succession planning look like for you? Are you handing the business over to the next generation or getting ready to sell?

By working through these types of questions and understanding your desired outcomes, you can make sure that when the time comes, your exit is smooth and tax efficient.

At the end of the day, business planning isn’t just about the business. It’s about you, your family, and your future. By taking a holistic approach, a financial planner can make sure your personal finances and business goals are aligned, so you get the most out of all your hard work.