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Wealth planning for entrepreneurs: Getting ahead can maximise value come business sale or retirement

Plan ahead: Wealth planning may not seem important when starting your business, but it pays to start early

For beginning entrepreneurs, long-term financial planning may be the last thing they want to think about.

Time and money are limited, and putting the success of your business ahead of your long-term personal financial goals may seem like an obvious choice.

However, running your own business, especially if you plan to hire staff, comes with a whole new world of financial considerations.

It can be a steep learning curve, especially if you are used to being employed where often your employer takes care of certain financial considerations such as pension contributions.

Plan ahead: Wealth planning may not seem important when starting your business, but it pays to start early

Plan ahead: Wealth planning may not seem important when starting your business, but it pays to start early

And the wealth trajectory is often very different for business owners versus employees.

An entrepreneur will often have a significant liquidity event, such as the sale of their business or the company going public via an IPO, which can be planned in advance.

As a founder, if you can pursue wealth planning throughout the life of your business, you can maximize the value you create for the business and for yourself.

Whereas for employees, wealth planners say they tend to see more steady accumulation of wealth through salaries and bonuses, over which individuals have far less control.

So what should business owners be thinking about? We look at financial considerations for entrepreneurs, how to best prepare for the future, and who to ask for advice.

When should entrepreneurs start financial planning?

Phil Sidebottom, of wealth management firm WH Ireland, says entrepreneurs need to think about wealth planning throughout the business lifecycle.

He breaks it down into steps. First, he says protection strategies should be considered both personally and for the business in the event of illness or death.

The right insurance must be in place to ensure that the business can continue to operate or recruit in the absence of the founder or key team members.

At the very beginning, it is also necessary to define the basic structure of the business, as this will dictate what will happen if a partner or an employee wants to leave later.

“A lot of times people get so wrapped up and excited about what they’re doing that they have to step back and think about what happens if you and your best friend don’t get along as well as they do today,” says Michael Stimpson of Wealth Management. company Saltus.

“It very much depends on the structure of their business, whether it’s a limited liability partnership, sole proprietor or business owner. They need to work hand in hand with their accountant on this.

Once the business is established and operational, investment diversification is an important consideration, Sidebottom says, so entrepreneurs continue to build a portfolio alongside their core business.

Planning for retirement as a business owner

Retirement planning should also be high on an entrepreneur’s to-do list. Not only will this ensure a comfortable retirement, but pension contributions can be effective for businesses as they qualify for corporate tax relief.

“A pension will not only provide a potential source of income in retirement, but also a tax-efficient structure to pass on to beneficiaries in the event of death,” Sidebottom says.

“From an annual allowance perspective, it may also be possible for the company to make larger pension contributions than if they were made by an individual.”

Finding the right advisor who understands your business and personal needs can make a big difference in your long-term planning.

Finding the right advisor who understands your business and personal needs can make a big difference in your long-term planning.

Even early on, entrepreneurs should think about their exit strategy, as inheritance tax could be a consideration.

For example, small businesses are likely to qualify for trade relief and therefore be exempt from inheritance tax – but if a cash sale takes place, the funds received will lose this exemption, unless advised otherwise.

It’s also important to plan what happens after a sale. What do you want to do next and what will your financial needs be?

Business owners often spend a lot of time thinking about when, but not about what to do next, Stimpson says.

“Your income situation and inheritance rights are established for a momentous event, but often business owners underestimate their needs after the business is sold,” he says.

“A liquidity event such as a sale or an IPO can be transformative for an entrepreneur,” adds Sidebottom. “Early and correct planning can help maximize the value derived from the business.”

How to Get Started with Wealth Planning

Finding the right advisor who not only understands your business, but also your personal situation and goals is essential.

An initial discussion with a qualified and experienced advisor will be essential. It can also be beneficial to include your other professional advisers, such as your accountant or lawyer, in the discussion to ensure that all parties are on the same page.

“Personal referrals, your existing network, and research are all good ways to find an advisor,” Sidebottom says.

Qualifications and experience are important factors, as is the ability to work alongside not only the business owner, but also other professional advisors on the team.

Sidebottom adds that if there is a relationship between the advisor and the company’s accountant, lawyer or finance company, all the better.

“Getting into the habit of checking in with your wealth plan every year, where you are and what you’re doing can be very helpful,” says Stimpson.

“All business owners should have a good accountant, and your accountant can often point you in the right direction with your personal wealth as well as with your business.”

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