When you run your own business, there’s no grand pension scheme or guaranteed retirement age. Instead, you are completely responsible for your retirement planning, including your pension fund. You may need to implement a pension scheme for the workers in your business, and you can pay into this too, but you also need to have a clear retirement plan, which might sit alongside the exit plan for your business.

Why think about retirement now?

If you’re a business owner, you’re likely to be immersed in business plans, new products or services, managing your employees and more. So ‘retirement’ might seem a long way off, and way down your list of priorities.

But it should be at the top of that list. Why? Because it’s likely that your business will provide the foundation for your retirement plans. And how can you plan to grow your business if you don’t know what you want from it at the end of your career?

The sooner you think about retirement and pension planning, the sooner you can start to build up funds and investments that will give you the lifestyle you need in retirement and support the plans and dreams you have for you and your family.

Don’t put all your retirement eggs in one basket

Many business owners think: “I’ll sell my business and that will fund my retirement”. But this can be a dangerous route to take. To begin with, it relies on your business being stable and successful until you retire – and then being saleable at that point. However much we love our businesses, they are not always the big-ticket vehicles we would like them to be. And, as we have seen in 2020, factors outside your control can affect the profitability and even the viability of your business, so instead of banking on selling your business, take the time to do some long-term planning instead.

Think about the tax implications

Retirement and pensions planning isn’t all about working out how you can pay for that round-the-world cruise. It’s also about making sure that your planning – for your business and your personal wealth – is as tax efficient as possible. That’s why you need to talk to an independent financial adviser. They can help you put together a plan that is workable and affordable and has your retirement goals in mind. Working with your business accountant, you and your adviser can see how to structure, grow and manage your business so that it can provide the income you need in the most tax-efficient way.

For example your business could make employers pension contributions to your personal pension which allows for significant tax efficient company pension contributions. By managing your ongoing pension contributions and investments, and having a clear plan for post-retirement investments, you can plan for a secure retirement sooner rather than later.

Investment for good

The way you invest your pension funds can have a significant sustainability and social impact.  Many business owners are making the switch to a sustainable investment strategy and this can align with your business’ mission and make an impact on your sustainability goals read more.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). Your capital is at risk. The value of your investment (and any income from them) can go down as well as up which would have an impact on the level of pension benefits available.

*with thanks to the Centre for Ageing Better Age Positive Image Library for the featured image.

Are you financially resilient?

We hear a lot about resilience. It’s one of the key things we’ve credited with getting us – and continuing to get us – through the Covid pandemic, and it’s becoming one of the characteristics that we use to judge our own actions and those of others.

What is resilience?

Usually used during times of difficulty, ‘resilience’ is about being able to adapt to circumstances, and having the flexibility to be able to see things differently or work differently in order to manage when things get tough.

So financial resilience is applying that same adaptability to your business and personal finances when times are hard.

So, when things have an impact on your busines or your assets, how able are you to change tack, diversify and cover your costs?

Building financial resilience

As we’ve seen over the past 12 months, it’s incredibly important to plan ahead when you can so that you have a financial cushion both in your business and in your personal finances. There are several ways to manage this, and it’s best to have a long-term plan that takes a range of possible scenarios into account.

Whilst it’s true that even the most forward-looking financial planner would have been unlikely to predict the circumstances that we’re in now, those people who have a plan in place should have savings or investments that they can use to plug any gaps now. They should also be getting advice on how they can plan to replace those assets over time. For business owners, this is a two-pronged approach: looking at what your personal financial plans and needs are, and seeing how your business can adapt to provide for those needs.

Tips for financial resilience

Here are a few tips to help you become more financially resilient. There’s no one-click wonder here; building financial resilience takes time and effort.

1. Have a plan. This is the most important thing you can do. You can’t make any decisions until you know what the ‘end points’ are. By sitting down and thinking about what you need now – to cover mortgage payments, bills, school fees and other expenses – and also what you want for the future, you can set some realistic goals and then see how you can meet them.
2. Reduce debt. Where you can, reduce your debts. No matter what happens in the world around you, your debts will still exist. So it’s a good idea to see which debts are costing you the most and getting rid of them if you can.
3. Take a good look at your business. Is it helping you as much as it could? Could you increase your income by diversifying or your profits by reducing costs? Is your tax planning as efficient as possible? Do you have an exit strategy? If your business is your main source of income, you need to make sure it’s working really hard for you.
4. Save and invest where you can. We know that building up savings and investments relies on your having excess income. How you manage that excess income can make a real difference to your long-term financial resilience. Professional advice will help you to see how you can make the most of your money, and how you can use it to give you additional security now and in the future.

The value of independent financial advice

To ensure that your financial resilience is properly planned, it’s a good idea to talk to an independent financial adviser. With the experience and market knowledge to ask the right questions, help you see where gaps in your financial planning might exist and work with you to plan a way forward that gives you the financial support and protection you need.

Should you be succession planning?

Your business might be relatively new, but you should still be thinking about succession planning. It’s something that often gets left until the last minute – or isn’t done at all – and that can have a significant impact not just on the ongoing success of your business, but also on your family’s personal financial situation.

What is succession planning?

It’s basically a safety net for you, your business and the people who rely on it. Succession planning is often just thought of as ‘who takes over when I retire’ but there are other reasons why your role might need filling. The two most obvious are ill health or death. Neither are tempting subjects, but both could happen at any time – and everyone needs to be prepared for the possibility.

Why is it important?

Your business almost certainly ticks along nicely from day to day. Everyone has their position and role, and they rely on you for leadership, strategy, planning and consistency. It’s amazing how quickly this seemingly ordered existence can fall apart if you are no longer there to steer things. Other relationships in the business may be strained; people who think they should take over the business might be thwarted; and if you’re running a family business, personal relationships can easily get in the way.

That’s why it’s important to take the time to think seriously about what plans and processes would kick in with your business if you were to be incapacitated, take early retirement or need to leave the business for any other reason.

Taking the time to get it right

Your succession plan will depend on whether you are running a family business or a stand-alone business. You might also have to make different plans if you are in a partnership rather than a Limited business. That’s why it’s a good idea to get some independent advice. There are some key things to think about, whatever type of business you run:

• Get started as soon as possible – the longer you leave it, the more tricky a succession plan may become. Even if you have only recently started your business, it’s worth thinking about your succession plan. It will help to keep your business running.
• Include key people in the business – there should be no such thing as a secret succession plan. For a family business, talk to the relevant people to be clear about what you want to achieve and sort out who is able or willing to work with you to achieve those goals. And even if it’s not a family business – you will need to bring the right people along with you as you plan.
• Think about what you want – if you are planning for early retirement, for example, do you still want to be able to take an income out of the business?
• Have a robust business plan in place – apart from planning early retirement, you’re unlikely to know exactly when your succession plan will be needed. So you need to have a strong and practical business plan in place so that your business is in the best possible position at all times.

It can take a while to sort out a good succession plan. There are many variables to take into account, many people to involve and a potential range of business processes to put into place. At Switchfoot Wealth, we’ll work with your accountant and other advisers to make sure that your personal financial needs and wants are reflected in your succession planning, giving you peace of mind for yourself and your family.