Milestones: Starting a Business

Milestones: Managing your finances when starting a new business

There’s a definite sense that more and more individuals are shunning “real jobs” in favour of starting their own business. Whether your motivation is the need for a more flexible schedule, pursuing a dream, seeking a more balanced life, or disillusionment with the corporate world, you’re likely to be giving up a steady salary for a less reliable income.

For the purposes of this article, we’re going to assume you’ve done your homework and identified that there is, indeed, a market for your business. We’re also going to assume that you’ll be researching and following best practice business advice on managing your business’s finances, cashflow and more.

However, in doing all that, it can be easy to forget about your own financial plan. Business owners often put their own cash into new companies. So, it’s important not to lose sight of how running a business affects your own financial position. You may well need to adapt your own financial plans for the risks and rewards of being a business owner.

Speak to a financial adviser before you start

Speaking to a financial adviser before you dive head first into business ownership is an excellent idea. They can help you manage your finances now, and plan for the future you’re hoping your new venture will enable you to reach.

A financial adviser can take a holistic look at your current financial status and help you figure out how much you can afford to invest in the business, and how much you need to be able to pay yourself to stay solvent. They can also help with tax planning opportunities and pension planning – all vital if your decision to start your own business is going to pay dividends in the long term.

Here are some of the key things you’ll need to consider:

Pension: don’t ignore it!

If you’ve previously been employed, there’s a good chance that you’ve had a company pension of some description. That may be as far as your retirement planning has gone. Without that in place, you’ll need to make your own provisions.

Arranging the right personal pension to plan for your own retirement is a vital step to take, as soon as you can. Don’t make the mistake of thinking of the business as the only retirement plan necessary! A lot can change between now and then. If you would like to enjoy retirement, a financial adviser can help with succession planning too.

If you’re employing people, you will also need to set up a company pension for them.

Get the right protection in place

One of the big decisions you’ll have is the legal status of your company. Will you be a sole trader, or a limited company? There are various pros and cons, depending on your business. But one thing to be aware of is that if you’re a sole trader, or partnership, you are personally liable for your business.

That means, if you end up in any kind financial trouble thanks to your business, your own assets, such as your house, are at risk. Understanding those risks, and preparing for them, is vital.

Business insurance may already be on your list of things to do. You should certainly consider professional indemnity insurance, public liability insurance and, if you’re employing someone, employer’s liability insurance. If you’re working from home, you’re likely to need to make some changes to your home insurance too.

However, it’s also worth considering some additional personal insurance. What happens, for example, if you’re taken ill and no longer able to work? How are you going to pay your bills then? Critical illness cover could be a wise investment.

Investments: diversification is key

As most small businesses are self-financed, they often automatically become the owner’s major investment. But, as with all investments, it’s not wise to put all your eggs in one basket. Diversification is key, and your financial adviser can help you build a sensible, balanced portfolio to help grow your money.

Estate Planning: planning for the future

 As morbid as it may sound, at some point you’re going to have to think about what will happen to your business if you die. If you don’t already have a will, now could be a good time to think about it.

If the business grows and becomes a significant asset, a simple will may not be enough for the transfer of the business. A financial adviser can help with more complicated financial planning techniques involved in ensuring business continuity and reducing any estate taxes.

Remember to review regularly

As with all financial planning, it’s vital to review your situation from time to time, especially as your business grows. Whilst it’s great that you have the drive to go it alone and start your own business, don’t apply the same logic to your financial future.

Getting some professional advice will really help you enjoy your new entrepreneurial status both now, and in the future.

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