Financial Planning for Business Owners

“Starting your own business isn’t just a job – it’s a way of life.”
Richard Branson

As a business owner, your personal wealth is closely tied to your company’s performance and whilst success for you can bring significant rewards, failure can be extremely painful.

On the one hand, it’s surprising that those who have most to lose often fail to plan, yet on the other it’s almost inevitable that the day to day pressures of running a small business push other tasks to one side. Whatever your experience it makes sense to take stock now and then, as the decisions you make now may have repercussions for many years to come.

For many financial advisers, their first point of interest in your situation will have been your money. Not your future. Not your business. Not what you wanted to achieve out of life. Your money.

We turn that approach on its head. What right do we have to talk about your money before we understand what is important to you, your values, your beliefs, your aspirations and how you see your future and that of those close to you?

It’s important to know where you’re heading and how you’re going to get there, before selecting the tools required to make that journey a success.

Your life goals are your destination and this is where our Life Planning service can help you get clarity.
Your financial plan is your map and, as with any destination, there are a number of routes that might get you there. We help you choose the route that is best for you right now.
Your investments, including the wealth tied up in your business, are the vehicle that gets you there. We help you make sure these are the right investments, well spread and low cost.

A plan properly structured around your priorities will have your investment in your business at the centre.

How is your business helping you to work towards your goal?
How and when will you realise your investment?
Will exiting the business create a problem in your plan?
What income are you taking now and are you taking it in the most appropriate way, considering all of the above?

Your business may well be your life, your passion; the place where you spend most of your time and you may wish to continue doing so as long as possible. In which case, it needs to be part of your life and financial plan. You are the focal point of your plan and your business is likely to be a focal point of yours for a significant part of your life.

8 step action plan

Review your business plan, if you haven’t already. What are your objectives over the next 1, 3, 5 years and beyond?
Now review your personal plan. Are the two aligned? What needs to change so that they are?
Does the importance of your business figure prominently in your financial plan? If not, why not?
Are you paying too much? Do you know what you are currently paying for both the advice you receive and the underlying products and funds in which you invest. Recent rule changes makes it easier to uncover the true costs of your investments.
Think about all of the people who are impacted by your plan. Your spouse or partner is probably the most immediate one. Then your children. Maybe even your children’s children. What about your wider family? Have you put in place the right plans in case things don’t turn out as you might hope?
How and when do you want to exit your business?
Involve your family in your planning.
Work with advisers you trust and get them to collaborate to ensure your plan is right for you and your family.

This is a key question for many business owners and is linked to ‘How much is enough?’, in other words, how much money will you need to ensure that you have enough for the rest of your life. Two of the biggest fears of our clients are not having enough money in retirement or outliving their money.

74% of family-owned businesses have been in control of the family for only a single generation.
Department for Business, Innovation and Skills (2016)

Of course, some businesses do not want to remain family business, or do not see themselves as family businesses, for those that do, however, why do many seem to fail to achieve that aim?

We think it comes down to approach.

A mindset that joins business and personal aims is different –
In work, you are probably primarily concerned with growing turnover and profit, or at least maintaining it at current high levels. At home, you are likely to be focused on more tangible, personal aims; a house move perhaps, a certain number of family holidays a year, your children’s education, or maybe a major project or hobby you regularly spend money on.

Ultimately, despite their different approaches, you are working towards the same things; a growth of wealth which helps you to achieve whatever it is that you want in life and in business.

Your personal success is tied to your company. Your company’s success is tied to you. An approach which recognises these two facts is vital.

Financial planning for business owners is often family focused.

To take a typical example, consider what would happen if you were to exit your business and leave it in the control of your son or daughter. This is a common wish for many family business owners.

The financial planning for some at this point will revolve around the person exiting the business. You are the person most likely to have taken financial advice and therefore the plan will be from your point of view.

But what of your son or daughter? They may be about to take over your business. Presumably this will involve a significant change in circumstances, both now and further down the line. Have they prepared for this point? Do they have all the skills they will need? Are they and the business financially ready?

This is where many financial plans ultimately fail from a wider ‘top down’ point of view, because family have not been involved. If you are passing your business to someone and their plan runs at odds to your own (or does not exist at all), then why should that transition be a success?

Financial plans, particularly for business owners, work best when the whole family is involved. When everyone can see the wider picture and have a ‘personal’ plan that works towards and for that picture, then everyone’s plan is more successful.

Just 15% of family businesses make it to second generation ownership. Only 1% are kept within the family for four generations.
Department for Business, Innovation and Skills (2016)

At some point, you will not be in charge of your business. This is a fact and so, whether tomorrow or when you are 99, your business will pass out of your hands.

How that happens though, in most cases, can be dictated by you.

It is odd then that in many cases, the transfer of business ownership is treated as almost factual, without substantial personal planning.

Some family businesses are aware that they will need to sell and the business will pass out of the family’s hands at some point. Other family businesses know which family member will take over when the current owner retires. And yet, in either case, there is rarely a documented sales plan or development plan to get the incoming family member to a point where they can run the business.

Exiting a business is one of the most important steps you will take as an owner of a family business and yet, too often, there is just a hazy idea for business owners that they will ‘get out at some point in the future’.

The problem is that the future always seems to arrive too soon or too late. You face the prospect of an unexpected event influencing how and when you exit your business, or staying within the business for longer than you want to, a situation which ultimately impacts heavily on what your retirement looks like.

Financial plans for business owners should consider the desired business exit. What will it look like, when will it occur, what financial impact will it have, what work needs to happen in the meantime to ensure that situation comes to pass exactly as planned?

Think about leaving your current position tomorrow and what impact that would have on the goals you have for yourself and your family. In all likelihood, the impact would be significant. Which is why planning for succession and/or exit is so important.

All of the issues we’ve highlighted here are clearly important, but we often find that family businesses can have something even more important at their heart.

Family businesses are likely to have vision and values. Maybe these aren’t documented, but simply manifest themselves in ‘the way things are done around here’. In either case, and whether you realise it or not, they will underpin your approach and inform a lot of how you do what you do. There is arguably a no more important thing for your adviser to do than to gain a good understanding of these values. Sometimes they can get lost in cashflow modelling and asset allocation. If that happens then it will probably become very clear to you, very quickly. The fact that someone ‘gets it’ is as obvious as when someone doesn’t ‘get it’. Make sure you work with the right advisers for you, your family and your business.

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