A young business that is beginning to make some profits
At this time the owner(s) are likely to be working very hard and fully focused on continuing to drive the business forward. They have already accomplished the toughest thing, making a profit! they now want to push on and grow. For this they will have a business plan and perhaps a mentor to help them put that plan in place. If the business has a plan then so should the business owner, for themselves and their families.
Entrepreneurs tend to be very driven individuals, goal oriented and focused on the task at hand. They though, like all of us have worries, what ifs?
What if something happens to me and I can’t work?
What if the business goes through a tough time?
What about the mortgage, the school fees, other debts?
But, what if these worries can be taken care of? This would give the individual more time to focus on their main objective – growing their business.
At this stage the first thing on the list should be protection; for them, their family and their business. A relatively small outlay life cover should provide enough capital to cover all debts (including mortgages). Thought should be given to protection of income and also in the event of a critical illness. Protection for the business too; if something happened to you would someone you trust step in to run it, or potentially sell to generate capital?
What about personal exposure to the business? Reducing debt elsewhere and building cash reserves/investments that are separate gives peace of mind. This is hugely important and allows the individual to focus on their company.
For those with more scope thought should be given to the longer term – by setting up a pension now even if minimal amounts are contributed this effectively stores up unused pension allowances for the future. For high earners (those earning over £150,000) the pension contribution allowance is gradually eroded down to just £10,000pa once they are earning over £210,000pa. The ability to take this level of income from their company will be most owners long term aim, but building up a tax efficient pension fund will also be a target. The new rules on pension contributions could prove problematic in the future but by starting a pension early it effectively starts the clock for carry forward contribution enabling lump sums to be made at a later date. This is because unused contributions can be carried forward for a period of 3 years on a rolling basis.
These three areas I believe should be the first planning an entrepreneur takes when he/she begins to make profits from their business. They are relatively small and inexpensive steps so shouldn’t hinder growth but should enable less worry and more time to focus on their company, which has to be a positive!