Financial Planning for Entrepreneurs  

As a rule, entrepreneurs are financially savvy business people. After all, it’s hard to generate any significant sum of money without sound basic financial planning. However, in order to optimise your income, ‘good’ simply isn’t good enough; you need to understand the best ways to enhance your long-term wealth and financial standing.

To help you out, here are a few key rules that you can’t afford to flout:

Rule One: Lay Strong Financial Foundations 

It’s impossible to build a business with long-term financial stability without first creating foundations that can weather a storm…

Create an Emergency Fund 

Any financial planning professional worth their salt will advise you to start your business by building a solid cash reserve; six to 12 months of living expenses is generally considered to be adequate.

Protect Yourself and Your Dependents 

If you find that you don’t have sufficient liquid capital to self-insure against death, disability or long-term sickness, then you need to take out appropriate insurance to cover you.

Pay Off Your Personal Debts 

Pay off personal debts before you invest your money elsewhere. Having a blank slate to start with gives you the best possible chance of building a business with financial longevity, and means that all of your early profits can be ploughed back into your enterprise rather than diverted elsewhere.

Rule Two: Enhance Your Returns Through Tax Allowances  

Once you have a solid financial base to build on, consider how you can utilise available tax allowances and exemptions to enhance returns on your invested wealth.

Utilise Tax Allowances 

One way to enhance your returns is to transfer ownership of your income producing assets to a lower rate or non-taxpaying spouse. This allows you to utilise their personal allowance and basic rate tax band. You’ll be able to offset deposit interest and rental income against the personal allowance, and will not be required to pay further tax on dividends where total income is less than the threshold amount.

Maximise Tax-Free Investments 

ISAs offer tax-free returns on cash investments up to the threshold amount, and also carry many benefits for those looking to invest in stocks and shares alternatives.

Junior ISAs can also be utilised by parents; as the returns generated don’t fall foul of parental disposition rules you could use them for university fee planning.

In addition, consider looking into the benefits of other tax-free options, such as national savings, investments savings certificates, premium bonds and children’s bonus bonds.

If this is not an area of expertise for you, then consider seeking investment advice from a professional who can help you to maximise the available opportunities.

Rule Three: Develop Tax Relieved Long-Term Strategies 

If you’re really forward thinking, it’s also worth considering committing your personal capital for the long-term in order to attract tax breaks. For example…

Consider UK Pensions 

For those willing to tie up a large chunk of their capital, UK pensions can really complement and enhance your overall financial planning. SIPPs, in particular, provide access to a wide range of investments, and offer investment flexibility, tax relief of up to 60 per cent on contributions, the ability to withdraw a quarter of the fund tax-free on retirement, and many other benefits for businesses that invest in them.

Consider VCTs, EISs and SEISs 

If you’re willing to branch out from your own business, many entrepreneurs find it beneficial to invest in smaller, unquoted companies through investment vehicles such as VCTs, EISs and SEISs. There are many tax incentives attached to such strategies and they’re becoming increasingly prevalent amongst SMEs.

How will you choose to increase your business’ profitability?