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Starting your own business can give you a valuable asset for the future. But are you relying solely on the success of your venture for a comfortable retirement?
It pays to be smart about securing your financial future. Here are our three long-term financial planning tips for female founders.
Tip 1: Assess the risks of your business and insure against them
When you have founded a business, it may not be front of mind to consider what happens if something goes wrong. But being prepared for the unexpected will help preserve your future financial plans. Assess the risks of your business and insure against them.
Consider key man insurance
For example, one risk to your business is the loss of key personnel. As the founder of the business, that includes you.
Thinking more widely, perhaps you have a few key people who keep operations afloat and drive profits. Would you be in crisis-mode if your best salesperson fell ill? Maybe there’s one person with all the crucial knowledge of a particular product. Highlight all the people in the business who you deem vital to its day-to-day running.
While it’s not a pleasant thought, it’s prudent to have a contingency plan if the worst happens and key people are struck with critical illness or pass away.
You can insure against this risk with key man insurance. It will plug the financial gap while the business recoups and reassesses. Without that safety net, some businesses may fail unexpectedly.
Make a business will
If one of your reasons for setting out in business was to provide for your family, then make sure the business is set up to do that, even after you’ve passed away. A business will, aligned with the procedures in your articles of association, is key for managing your intentions.
Make sure that your interest or shares in the business are protected, and that their value will pass to the beneficiaries you’ve chosen. You can ensure this happens in the most tax-efficient way with a professionally drafted business will or shareholder agreement.
Please note that advice in this area would necessitate the referral to a service that is separate and distinct from those offered by Calver Wealth Management or St. James’s Place.
Tip 2: Create a pension pot
Pensions can seem a little unglamorous, can’t they? When you’ve got an exciting new business to get on with, the idea of a pension may be far from your mind.
Maybe you’ve decided that your business will be your pension and that there’s no need for another pot. It’s certainly possible to receive sufficient funds from your business for your retirement. But even the most successful people have diversified income streams. Having a pension fund in addition to the proceeds from your business will help secure your future.
Another, perhaps more enticing reason for creating a pension, is the tax efficiency in extracting profit from your business. If your business is a limited company, you may have the ability to extract your pension allowance as a business expense.
That means you’re effectively reducing your corporation tax bill and your national insurance tax payments. You don’t pay income tax on moving profits into your pension, so overall you’re saving yourself personal, and business taxation.
It’s crucial to take advice from a professional when extracting profits tax efficiently. There are many rules to follow and you’ll need to ensure that you adhere to all the relevant legislation. Calver Wealth Management specialise in providing financial advice to business owners.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.
The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.
Tip 3: Invest a proportion of your monthly income
You’ve probably heard it said that cash in the bank is the least effective way of growing your wealth. Particularly with the current record-low interest rates, the value of your savings is likely to be overtaken by inflation.
Make your money work harder by investing it. Using the markets for potential growth will help create another nest-egg for your future. You could set up a system whereby you invest 10% of your monthly income. Or, if your income is more volatile, invest whatever is left in surplus at the end of the month.
By investing regularly, and over a relatively lengthy period of time (at least 10 years), you’ll find your savings start to grow exponentially due to compound growth. With the right financial advice and guidance on which funds and investments to choose, you could build yourself a successful portfolio that can support you in the future.
The value of an investment with St. James’s Place is directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested. The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.
Financial planning tips for female founders – Conclusion
When you’re setting up your business, don’t forget to plan wisely for your future. With a business which is protected against risk, a pension and an investment portfolio, you’ll have a well-diversified strategy to secure your finances in retirement and provide for your family.
We can help you find your way through planning your future finances. Get in touch if you would like financial planning tips for female founders.