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Financial Planning

for Businesses

AND FOR PEOPLE IN BUSINESS

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Introduction

Who We Are 03

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Tax Planning

Summary

What is exactly is“Financial Planning”?

Why Businesses and People in Business will benefit from adopting financial planning practices

The Business World in the UK today

ContentsRajesh Modha

Chartered Financial Planner

The value of f inancial planning for business owners has developed over the last few years. I t has progressed from simply choosing investment funds for a pension fund to save corporation tax, to a partnership where strategic plans are created based on an understanding on a business owners aspirations for their company; their family; and their t ime.

By uti l is ing tools avai lable to the f inancial planner, the business owner can truly “make their business their pension”. This doesn’t always necessari ly mean sel l ing a business, but can include tax eff ic ient profit extraction; using associated investment company’s as wel l as using tradit ional pension investment options.

The Finance Lab is experienced in helping business owners plan for a future of pleasure, engagement and meaning. I t al l s imply starts with a great conversation.

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FinanceLab is a female focussed f inancial planning consultancy. We provide hol ist ic , tai lored f inancial strategies for singles; divorcees; widows and female entrepreneurs. The backdrop to being our cl ients ’ ‘ trusted advisor ’ is Honesty. Accountabi l i ty. Authenticity.

Who We Are

Too often the f inancial product takes centre stage of the advice process. I bel ieve this is because the ‘money’ is the cl ient and not you. Thankful ly , this method of advice is changing, and I am proud to say that I am part of the profession that is focusing on helping you (the cl ient) feel comfortable and confident about your f inancial future.

This involves the normal advice around investments, pensions and estate planning, but more importantly we focus on creating a f inancial plan based on your l i festyle aspirations. We understand your story around money. We coach you, we make you accountable for the decisions you take. We take pride standing side by side with you on your l i fe ’s journey. This al l starts with a conversation.. .would you l ike one?

Hello & thank you accepting this guide. Advice around your ‘money’ can often feel complicated. I don’t bel ieve it needs to be. So I ’ve created a number of these guides to provide a simple explanation to important areas of f inancial advice.

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I f you are a business owner or in business for yourself , in whatever fashion, we would l ike to introduce to you an idea: that your business could gain signif icant benefit from a proven way to organise your f inances (and in this context, those of your Business) .

The method of managing your f inances, known as Financial Planning, has tradit ional ly been considered as an individual practice, one that works for individuals and their famil ies.

However, as we wil l explain in this guide, there are strong reasons – and by extension therefore major benefits - for businesses (and for business owners/managers) to use the Financial Planning approach .

The various attr ibutes which make Financial Planning such a strong basis for good f inancial management are equal ly appl icable to businesses and their owners, as they are to individuals and their famil ies. I t is just that this connection has not been made before – we wish to correct this.

Introduction What exactly is “Financial Planning?”

• True Financial Planning has a major emphasis on the strength of the working relationship between the Financial Planner and their c l ient; this relat ionship must be one of absolute trust.

• There is a broadening of the normal f inancial management methods (that f inancial advisers might use, for example) to include a proper understanding of how the individual ’s f inances relate to their l ifestyle requirements.

• There is a considerable focus during the process on goals and outcomes ; in relat ing the plan to clearly stated goals or objectives.

• Individual f inancial plans have high regard for wider family needs and requirements.

• Lifet ime Financial Planning wil l often encompass cash flow forecasts , long term income and expenditure analyses to see how any implemented plan wil l work into the longer term. This often predicts how much money an individual will need for the rest of their l ife .

• There is a holistic nature to Financial Planning, in other words the plan has to be al l encompassing – managing to cater for a wide range of needs and not just f inancial ones.

• The review aspect, whereby detailed reviews take place on a regular basis , are crit ical . The plan has to be constantly updated and adapted.

The process is bui lt around a detai led and broad understanding of an individual ’s overall requirements, planning through their various l ife stages and gett ing everything into one cohesive plan.

The real key though is that i ts foundations are constructed on more than just the process; there are some other central factors including:

Putt ing al l these factors together and working everything through the six step process is the methodology of Financial Planning. Mil l ions of people worldwide work with this method and the results are impressive.

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The Business World In The UK

TodayThe shape of business is changing and has been for a few years; more and more people are now in business for themselves. Since 2010 there are now over 1 mil l ion more self-employed people; in al l around 2 mil l ion new businesses have been formed during this period. The profi le of people start ing and running businesses has changed, for example there has been a big r ise in the number of over 50s going into business. More women than ever before run their own businesses ( increasing by 2% a year in recent years – source: House of Commons Brief ing Paper, 28th May 2015). Slowly, over the past few decades, the tax rules have changed.

Leading to a situation where there are some favourable tax posit ions for the self-employed and for the business owner, i f they get their tax structures r ight. The retirement picture has also altered, s ignif icantly so. Individuals are now l iv ing longer (the average age at death has gone up by nearly 5 years over the past 25 years and the nature of the retirement period and years is different. Put simply – ret irement requires a far greater sum than it ever did. People who go into business under their own steam wil l typical ly see their business as part of their ret irement plan; the success of their business wil l have a direct knock-on impact to the qual ity of their ret irement.

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Why business and people in businesswill benef it f rom adopting f inancial planning practice

• A business wil l probably rely on its owner(s) for i ts revenue and profits; the fortunes of the business wil l be correlated to its owner(s) financial well-being . L ikewise the owner’s family is l ikely to be rel iant on the business ‘by associat ion’ . I f the business owner fal ls i l l or dies i t could have extremely detrimental effects on the business and/or on the family. I t is common for businesses to be exposed by this. A Financial Planning approach would not al low this to occur; suitable protection plans would be put in place to protect the business, the owner and the owner’s family. Far too many businesses fai l to properly plan and protect.

• Tax affairs for people and for the business are going to overlap, different structures have different tax implications. The decision whether to operate as a sole trader or as a l imited company (or i f possible as a partnership and/or a l imited l iabi l i ty partnership) are crucial ones which could have dramatic impact on taxes paid.

• The balance between short term considerations ( i .e. how to l imit annual taxes such as income tax) against long term goals ( i .e. how to maximise a pay out on exit ) can be del icate and tr icky.

• Exit planning and/or succession planning is of paramount importance to a business owner looking to secure their long terms goals.

It is c lear that a business and its owner’s f inances are entwined.They are not separate things. One rel ies on the other.

The core principles of f inancial planning; such as a having a strong relat ionship with a suitably qual if ied Financial Planner, working to a structured plan, treating everything on a hol ist ic basis ( i .e. what you do in one area may well affect another and vice versa) , using targeted goals and outcomes as the basis for the plan and supporting this with regular reviews and updates – are al l easi ly adopted to work for a business.

I f we consider some of the most important business requirements as examples, we can start to show how f inancial planning can help:

None of the requirements above are isolated. As previously indicated each area of planning must be considered as a whole; one of the common shortfal ls of other methods of f inancial management is where the various aspects are dealt with separately. This can cause a breakdown in the planning process or, more l ikely, i t wi l l not work anywhere near as eff ic iently or effect ively as a Financial Planning approach.

Each of the business requirements shown as examples above can be effect ively tackled by taking a f inancial planning approach.


8 9Tax Planning

I f we look at just one to i l lustrate further: tax planning. Many businesses (and/or their owners) either do not undertake major tax reviews or they leave it to their accountant.

Common questions such as, how do I minimise my tax bi l l this year or how much should I take as salary versus how much should I pay into my pension, become isolated ones. They are considered on their short term merits, not in the context of the wider plan, not in the context of how they impact the long term goals, not in the context of how they impact the cash f low forecast.I f your approach is to minimise your tax bi l l in the current year (and therefore you reduce your profit or income) – but then you need to raise f inance in 2/3 years to supplement your medium term objectives, have you brewed up a problem? Or i f you want to maximise a sale value on exit – how does this stack up against restr ict ing profits (to save tax) in the shorter term?

Also how does your business tax planning, interact with your personal tax planning requirements? Is your business structured in a way that wi l l al low you to pass the business onto the next generation ‘ tax free’? Simple things get missed when f inancial affairs are considered in isolat ion; for example do you have a l i fe assurance pol icy which you pay from your personal account to provide protection for your family on your death? And a business which you own, with a business account? I f that is the case (and it is for thousands of people in business) then you wil l probably be paying completely unnecessary tax. As you need to earn income to have the money avai lable to pay for your personal l i fe assurance cover. Yet you could possibly pay for this cover directly out of the business, saving the need to pay yourself , probably saving tax.

These ideas and thoughts about tax are just tax considerations. A business wil l have considerations and decisions to be made about al l sorts of requirements, some business, some personal , some f inancial and some l i fe style.

F inancial Planning is a way of embracing al l these considerations and creating one overal l plan which balances them out against one another.

The Case of Ms. OrangeMs. Orange has worked in her business for more than 20 years. Start ing as a “one woman band”, she now has over 50 employees. Business is good, but she’s t ired. She’s given everything over the years, and she feels l ike i t ’s t ime to sel l . The question is. . . .how much does she need?

The f inancial planning process al lowed me to model for a l i festyle that Ms. Orange and her family shared that they wanted to enjoy. I t concentrated on f inancial security, a l i fe of meaning and continued engagement. We discussed charitable giving and working in the community. I t was a conversation of a l i fet ime for a l i festyle of a l i fet ime. We were further able to discuss different scenario ’s or ‘what i fs ’ , looking at different f inancial scenarios so she could explore the idea of her identity after she sold her business. We were able to not only help Ms. Orange identify her number, but the consequences of that number.

The next stage was to prepare the business for sale. I t took twelve months, but during this t ime Ms. Orange had renewed energy - she was ready to move on and start her new chapter. The business sold six months after that.

Financial planning for business owners is more than just investment advice. I ts using your most valuable asset - your business - to help plan and action sensible f inancial strategies for an authentic and fulf i l l ing l i fe.


“To help our selected clients to understand and plan for an authentic l ifestyle, by providing behavioural investment coaching and bespoke financial strategies so that they look forward to waking up every morning, but also have the peace of mind to be able to sleep soundly at night.”

The Finance Lab Ltd is authorised and regulated by the Financial Conduct Authority. Reference Number 563214

The Finance Lab Ltd is registered in England and Wales No. 06316029.

Registered Off ice: 1 Cradock Street Leicester LE5 3AW Readers should not rely on, or take any action or steps, based on anything written in this guide without f irst taking appropriate advice.

The Finance Lab Ltd cannot be held responsible for any decisions based on the wording in this guide where such advice has not been sought or taken. The information contained in this guide was prepared and published in September 2018.

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SummaryThere is a school of thought which suggests the most important f inancial decision takenby business owners are around who they work with. As suggested earl ier in this guide,a cornerstone, arguably the cornerstone, of f inancial planning is the relat ionship betweenthe Financial Planner and their c l ient.

This is a way of working which has developed strongly in the past few years, but i t hastended to work at an individual level for and with individuals. Yet with so many individuals in the UK now operating their own businesses (often into their later years) the value of this relat ionship and the adoption of f inancial planning principles and practices seem tomake perfect sense.

The requirements (and decisions) within the business can al l be tackled successful ly bythese principles.

Individual ’s f inancial planning has been revolutionised by taking this approach; webel ieve this can be now be, and should be, extended to those of you running a business.

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