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Financial Planning for SME Owners – Four Top Tips

With so many small business owners working hard for their business, finding time to work on your business can be quite a challenge.  When it comes to financial planning for your business, finding the time to do this effectively may seem impossible.  We have five tips to help you to benefit your business with some insightful financial planning that will help your business grow.

  1. Shareholder Protection Insurance – this can be the best way to protect your business and your legacy.  If a business founder, or another shareholding director, of a small company dies, this will result in uncertainty about the business finance, its future ownership and even its ongoing existence.  What’s more, if nobody has planned for succession, the families of business owners may find themselves with no means of accessing the value that had been locked up in the family business.  In order to avoid this risk, shareholder protection arrangements should be implemented to ensure the continuation of the business in its current form, whilst making sure families of those who founded the business are adequately taken care of.  Shareholder protection provides the funding and the means for a smooth, tax-efficient transfer of a director’s shares in the event of death or ill health – so talk to your financial advisor about this.
  2. Pension Funding – despite the fact that a pension is often the most efficient method of drawing cash from your business, don’t confuse your business with your pension!  If you limit yourself to making an “employee” contribution from your after tax income because your annual allowance would be limited to the taxable salary you’re paid.  It could be more efficient for your company to make employer pension contributions.  Your company can contribute up to £40,000 annually (gross) to your pension and receive corporation tax relief (no matter what your salary is) and make use of any previously unused allowance from the past three years through “carry forward”. 
  3. Keyman Cover – any company with fewer than ten people will be vulnerable if a key member of staff were to die or contract a long-term illness.  Keyman insurance can be used to protect investor capital or to cover business loans.  It will also protect a business against risks like losing clients, recruitment and training costs, temporary staffing costs, loss of new business, contract failure and even start-up costs for a new business.  A financial advisor will help you to find the best combination of premiums and policy terms, and process your applications.
  4. Life Insurance – you can take out life insurance cover via your limited company for a much cheaper price than it would cost you on an individual basis.  Because your company pays the premiums, this is a cheaper and more tax efficient option.  The premiums are paid by your company, rather than from your post-tax income, so the cost of the premiums are likely to be at least 30% less for a basic-rate tax payer, and 50% for a higher-rate taxpayer.  The premiums paid by the company may qualify for corporation tax relief too.  An additional advantage is that because life policies are not considered a P11D benefit, there will be no additional income tax or national insurance to pay at the end of the tax year.