How to safeguard your business, diversify investments and plan for a prosperous retirement
For many entrepreneurs, the business means everything, a commitment of time, money and passion. However, building a successful enterprise requires more than a great idea; it also requires a solid financial foundation to support growth and safeguard your personal future. Professional financial planning is not merely a business requirement; it is essential to your long-term success.
Many business owners see their company as their pension plan. It’s a common belief that once they retire, the business will be sold and the proceeds will adequately fund their later years. However, this can be a risky approach. What if the sale takes longer than expected, or if the final valuation is lower than what you need to enjoy the lifestyle you desire?
Securing your retirement
Making regular contributions to a personal pension helps establish a more secure financial future, separate from your business’s performance. It also offers a highly tax-efficient way to save. As a company owner, you can make personal contributions that qualify for tax relief. Additionally, your company can make employer contributions, which are typically deductible against Corporation Tax, thereby reducing your business’s tax liability.
Securing professional financial planning advice is vital to navigate the complexities of personal and business tax reliefs available to you. We can also provide guidance on the most suitable business structure to optimise your tax position, ensuring you maximise every opportunity to save effectively for retirement.
Protecting your most valuable assets
You’re probably familiar with insuring your business premises, equipment and stock. But have you considered protecting your most valuable asset: your people? As the owner, you are essential to the business’s operations. If you were to pass away or become seriously ill and unable to work, the business could face significant challenges and struggle to continue trading.
Protection against death and critical illness is therefore essential for entrepreneurs. It is also wise to consider covering other key individuals within your organisation. Solutions such as key person protection and shareholder protection can provide the necessary capital to keep the business running if the worst happens to a vital staff member or a fellow shareholder.
Advice on cross-option agreements can also be beneficial, as they enable surviving shareholders to choose to purchase the shares of a deceased or critically ill shareholder, helping to maintain stability and minimise disruption.
Planning your exit from day one
Although exiting your business might seem like a distant goal, early planning can provide significant advantages later on. If your long-term aim is to sell, it is wise to identify your ‘magic number’. This is the amount you would need from a sale to maintain your preferred lifestyle. We can assist you in calculating this figure, considering your other assets such as pensions, savings and investments to determine whether a potential sale would be sufficient.
If you plan to pass the business to your family, you might be eligible for Business Relief (BR), which can significantly reduce Inheritance Tax (IHT). Currently, BR can mean no IHT is payable on the value of company shares upon your death. It is essential to stay informed about changes. From April 2026, the full IHT relief will apply only to the first £1 million of qualifying assets per individual, with a 50% relief rate (equivalent to a 20% tax rate) applying thereafter. Also, ensure your Will is up to date so your shares and business interests are transferred according to your wishes.
Diversifying beyond your business
Your primary focus might be on reinvesting in your business to drive its success, but it is important to consider your overall investment strategy. In addition to putting money back into your company, consider investing across various asset classes, such as equities, bonds and property. Diversifying your investments can help protect your long-term finances if the business does not perform as well as you had hoped.
Depending on your company’s cash flow, investing some of its surplus profits can offer that capital opportunities for long-term growth beyond the business itself. The allocation of funds across different assets will depend on factors such as your investment timeframe, personal goals and risk appetite. Regular reviews of your financial plan are crucial to ensure it remains aligned with both your personal and business objectives as they evolve.
This article is for information purposes only and does not constitute tax, legal or financial advice. Tax treatment depends on individual circumstances and may change in the future. A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless the plan has a protected pension age). The value of your investments (and any income from them) can go down as well as up, which would have an impact on the level of pension benefits available. Investments can fall as well as rise in value, and you may get back less than you invest. The Financial Conduct Authority does not regulate estate planning, tax advice or trusts.
