If you’re a business owner, your company is probably at the heart of your family’s life plans. It’s likely to be your primary source of income, and you may expect to use it as a source of funds in retirement and to tick off some of your bucket list goals.

As your business could play a key role in your family’s future, it can be beneficial to integrate it into your strategy when developing a personal financial plan.

It’s likely the day-to-day running of your company will take up a significant portion of your time and energy – as a business owner myself, I know what it’s like!

Yet, making time in your busy schedule to consider how your company factors into your financial plan could put you in the best position to achieve your life-long dreams and ambitions.

So, here are four practical financial planning tips to help you attain all your lifestyle goals.

1. Make larger contributions to your pension

As a business owner, you may see your company as your pension.

If so, you’re not alone. Investec found that 83% of family-run business owners are relying on their businesses to fund their retirement. And 25% expect to fund more than half of their retirement spending from their businesses.

However, as Stephen Covey, author of The 7 Habits of Highly Effective People, once said: “If there’s one thing that’s certain in business, it’s uncertainty”.

Sadly, sometimes things don’t go to plan and – if you’re relying on your business to fund your retirement – you may find yourself without enough money to live your dream lifestyle when you stop working.

The good news is that taking proper precautions could help you secure a certain standard of living in later life, no matter how your business performs.

One way to do this is by making the most of pension contributions while you’re still earning.

Contributing to your pension has several advantages:

• When you pay into your pension, some of the Income Tax you would have paid on your salary goes into your pension pot – this is known as “tax relief”. You’ll automatically receive a 20% top-up from the government on any contributions you make. Higher- and additional-rate taxpayers can claim the additional 20% or 25% tax relief through self-assessment.
• As well as personal contributions, making employer contributions into your pension could increase your pot while reducing your company’s Corporation Tax bill.
• Returns on investments held in your pension are exempt from Capital Gains Tax (CGT) and Dividend Tax.

A financial planner can help you determine how much to contribute to your pension, creating a healthy retirement fund that could support your life goals without relying on your business.

2. Prepare your business in case you lose important team members

Though it’s smart to accrue a standalone retirement fund, your business could provide a lucrative source of income in later life. So, it’s wise to make your company as resilient as possible.

You likely have insurance to protect your stock or premises, but have you considered the risk of losing some of your company's most important people? There are two crucial things to think about here.

If a key person falls ill or dies

Your business may have several key people who are essential to its day-to-day running. If they were to fall ill or pass away, it could be very costly.

Worryingly, Legal & General found that 6 in 10 businesses would cease trading within six months of losing a key person.

Key person insurance pays out a lump sum to your business in the event this happens. It could cover lost income caused by their absence and help pay costs while you search for their replacement.

If a shareholder or partner passes away or becomes ill

If a shareholder or partner in your business passes away or becomes seriously ill, the remaining shareholders or partners may need to buy out their stake in the business in order to make important decisions.

However, coming up with funds to do this at short notice could be challenging.

Shareholder protection and partner protection pay out in these scenarios, allowing the remaining shareholders or partners to manage the business and pay a much-needed lump sum to the ill or deceased person’s family.

3. Think ahead to your exit

Depending on where you are in your business-owner journey, your exit may seem a long way off. However, it’s never too early to start thinking ahead.

Taking the time to consider how you may leave your business has several benefits.

Firstly, as you look forward to retirement, it’s important to determine how much you’ll need to fund your dream lifestyle.

You may plan to use proceeds from the sale of your business to fund your later life. So, to ensure that you’re able to achieve your goals in retirement, it could be important to determine how much you’ll need to sell your business for.

A financial planner can help you do this with cashflow modelling. Using your current income, savings and investments, and your retirement plans, we can forecast how much you might need to retire.

With this knowledge, we can calculate a valuation target for you to work towards. When you reach it, you know you should be able to sell up and retire comfortably.

Secondly, thinking ahead gives you time to choose your best exit strategy. For example, if you’re considering selling to existing team members, you could begin by identifying who would make the best successor and start mooting the idea to gauge their interest.

By doing this, you can establish which options are available to you and lay any necessary groundwork.

4. Invest your money elsewhere

It may be tempting to take an all-or-nothing approach with your business and re-invest all your hard-earned money to maximise growth.

However, this could put your finances at risk. If something were to go wrong, you might find yourself without the funds to achieve important life goals.

With this in mind, it could be important not to “put all of your eggs in one basket” and hold separate cash and investments.

For example, you may need money in the future to pay for your child’s wedding, a new car, or a dream holiday. Investing in stocks and shares, buying bonds, and holding cash could enable you to achieve these goals even if your business experiences a difficult period.

You could also benefit from tax-efficient wrappers. That’s because returns on savings and investments held within ISAs are exempt from Income Tax, Dividend Tax and CGT.

A financial planner can help you develop a diversified portfolio that supports your long-term goals and protects the wealth you’ve worked so hard to build through your business.

Get in touch

If you’d like assistance developing a financial plan with your business at its heart, please get in touch.

Email us at info@macfp.co.uk or call 01349 832849 to find out how we can help.

Please note

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

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts. 

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.