Personal financial tips for business owners and company directors

In addition to the financial advice a business may require, business owners and company directors often have their own additional individual financial planning needs with unique opportunities available to ensure that their own personal financial plans work in harmony with those of the business.

Ensure business continuity

For company owners and directors, their own personal income in the form of a salary, drawings and dividends is often intrinsically linked to the continued performance of the business.

With some businesses reliant on specific individuals within – due to their experience, contacts or expertise, thought should be given to the scenario in which these key individuals are unable to work due to sickness, injury, or death. Would the business struggle to function in the same way and could this in-turn have an impact on your own personal income?

This situation can be protected against with the business potentially receiving a lump sum to replace any loss of earnings and/or has the available funds to recruit a replacement with similar skills and/or contacts, meaning your income may continue.

Protect your stake

A Shareholder Agreement will commonly define how a company should be operated and outlines shareholders’ rights and obligations in addition to what outside parties may become future shareholders, particularly in the event of death. In this situation it may specify that the deceased’s shares may be purchased by a remaining shareholder.

Whilst this can be good in ensuring remaining shareholders do not lose control over their business, it can place a sometimes-unexpected financial liability on the remaining shareholder(s) in being required to purchase this holding.

Do you hold enough available cash to purchase these shares, or would you be comfortable with potentially an outside third-party holding these?

It is possible to protect yourself against this exact scenario with a form of business life insurance, making succession planning as smooth as possible.

Extract cash tax-efficiently

Company paid insurance policies and many employee benefits are often tax-deductible business expenses so can be offset against Corporation Tax so to benefit the business, whilst you or your nominated beneficiaries receive any benefit potentially not subject to income tax, Capital Gains Tax or Inheritance Tax in some examples if written in Trust.

Pension contributions can also be a good way to tax-efficiently extract cash from the business whilst benefiting personally.

Employer pension contributions are deductible as a business expense and any personal contributions you also make can benefit from tax relief at your highest marginal rate. However, do be aware of not exceeding both your annual allowance and lifetime allowance.

High earners may also wish to consider whether the workplace pension scheme, perhaps originally set-up as a requirement of the automatic enrolment legislation, is actually the most appropriate policy for their particular needs. Alternative personal policies can potentially provide fund selections tailored to your own attitude to risk and capacity for loss with potential for even purchasing commercial property within and renting back to the company – potentially allowing both the business and you as the policyholder to benefit.

To speak to a Financial Planner further about the unique opportunities available to suit both yours and the business’ long-term objectives please contact us on 01227 768 231 or complete our online enquiry form.

The content of this article is for information only and does not constitute formal financial advice. This material is for general information only and does not constitute investment, tax, legal or other forms of advice.

You should not rely on this information to make, or refrain from making any decisions. Always obtain independent, professional advice for your own particular situation.

Kreston Reeves Financial Planning Limited, Independent Financial Advisers. Authorised and regulated by the Financial Conduct Authority.