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29.03.21

Great business idea…but is your financial plan in place?

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Tony Fields, Chartered Financial Planner at Jarrovian Group, has some thought-provoking messages for budding and even established entrepreneurs

As an entrepreneur you are by nature a risk-taker and have made huge sacrifices to get your business to where it is today.  This may not be your first business venture, and your experiences throughout your life have been a fantastic learning curve to enable you to be well prepared to make this a huge success. Being an entrepreneur can be all-consuming, and many of our entrepreneurial clients tell us that it can be very hard to switch off.  This has always been so much more than a job, but rather a way of life, and you desperately want your business to succeed. You have surrounded yourself with experts and advisors who have fantastic contact networks, and who are there to help you at every step of your journey. You have big plans, dreams, and aspirations for your business, which is so exciting, and it is fantastic when others share your passion for the business.

Depending on where you are within your journey as an entrepreneur, you may not need a full bespoke financial plan, but it is essential to put the foundations in place. 

Tony Fields, Chartered Financial Planner at Jarrovian Group

Advice from financial planning experts can be invaluable

Working alongside experts who can act as a professional sounding board can be invaluable, particularly if their focus is not simply to massage your ego but rather to provide a different perspective.  Better still if they also share your passion for the business!  In business it is sensible to recognise your own strengths, as well as the areas which come less naturally to you, to ensure that your business advisors and wider experts, complement your approach.  In addition, speaking with financial planners that have extensive experience working alongside other entrepreneurs (who have embarked on a similar journey) can be hugely beneficial.

Have you got your building blocks in place?

When considering financial planning, traditional financial planning firms will want to engage you when you have achieved your dreams, and you have had the future business exit that you are working towards.  At this point, you will have numerous financial planning firms and wider advisors who want to help you, and you will be unsure whether their intentions are the right ones.  Commercially, at this point, you are a very attractive client and, traditionally in financial planning, client value is measured on assets under management.  The majority of financial planning firms still operate this approach; however, the market is evolving, and some organisations are implementing fixed fee models.  The reality is when you start a business, there are foundations that you should consider from a financial planning perspective.  Whilst commercially financial planners do not engage entrepreneurs at this stage of their journey, this does not mean that there are building blocks that could and should be put in place.  Whether you decide to put these foundations in place yourself, or with the use of a financial planner, is a personal choice, however the building blocks should be considered.

Be prepared for the unexpected

What would happen if you fell out with your fellow business partners and or advisors, or if one of your fellow directors was unable to work or worse still died?  Would you be happy that their shareholding would pass to one of their family members? 

Would you be happy to have a new business partner with no experience in your field?  Would you have the financial resources to pay off the family member in question?  Having business protection in place which runs alongside your shareholder agreement is so important. It can provide the financial security and peace of mind that you are protected if the worst were to happen.

Don’t forget those allowable expenses and pensions

Have you considered pension planning?  As a director, contributions can be treated as an allowable expense and will reduce your corporation tax bill.  Pensions can also enable you to accumulate your own personal wealth in an environment which is free of tax.  Pensions cannot be accessed until the age of 55. However, when it comes to taking your benefits you have so much more freedom and control than in years gone by and can take income when you need it.  It is not commonly known, but certain pensions can provide future liquidity and there is the potential, to provide loans and or to borrow monies.  Whilst there are certain rules that govern this, within Small Self Administrated Schemes (SSAS’s) this can in many ways, be considered as an additional tax efficient banking facility. 

This again can be hugely beneficial, perhaps not now and whilst you may not be looking to pay into a pension straight away, there could be historic pensions which you may have accumulated which could potentially be used for this purpose.

Protecting your investment and personal wealth

Do you invest money, and have you considered your own personal balance sheet?  As entrepreneurs you will naturally be very aware of your business balance sheet, but what about your personal balance sheet?  What would happen if you did not achieve the future business exit you were hoping for?  Are you investing everything on black?  It is important to be realistic and to consider all outcomes.  If you invest even a small amount, this can help to build you your own personal wealth which will mean that you and your family are in a fantastic position, whether the outcome is red or black.  There are fantastic investment options available, and a good financial planner will work alongside an entrepreneur’s accountant to consider areas like profit extraction, and to help utilise all the investment and taxation options available.

Bespoke financial plans give you solid foundations

If you are at the start of your journey as an entrepreneur, you may not need a full bespoke financial plan, but it is essential to put the foundations in place.  Implementing a “light touch” financial plan, can ensure that you have the right initial building blocks in position, and then as your business grows and expands, this plan can evolve and be readjusted to ensure that it reflects your changing requirements.  These financial plans can be linked to “financial products” which is the traditional approach, or set up on a fixed fee basis, which can ensure that the plan is aligned to your future aspirations as an entrepreneur.

Know all your options

If you speak with a financial planner at this stage it may be simply to gather knowledge.  Whether it makes sense to formally engage them ultimately comes down to the perceived value, However, being aware of the different options available to you will help you to plan more effectively for the future. At Jarrovian, we offer a full range of services to meet the requirements of entrepreneurs.

I hope you have found this article informative. If so, please share it with friends and colleagues. If you have any comments for me send them to tony@jarrovian.co.uk.

Tony Field
Chartered Financial Planner

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