Once your business is up and running (and we appreciate that’s enormously tough in itself these days), it’s easy, perhaps, for the less financially interested or astute to put more complicated money concerns to the back of their minds. But if you do this, you may not be making the most of your money. Worse, you could be putting your business at risk.
PCR spoke to Mark Ireland, an independent financial adviser, about simple steps businesses can take to protect their interests. He’s worked with many small and medium sized companies over the years and helped them plan their finances. As he says: “We shouldn't leave our personal or business finances to chance; those that do will be less profitable, pay more tax and maybe even lose everything in the end.”
Here he sets out some important considerations for any business regardless of size, turnover or time in existence. Some tips are basic housekeeping, but much of this can be forgotten in a busy working day, whilst others include aspects of business planning often overlooked until it is too late.
1. BUSINESS BANKING
We’re all afraid of switching banks for day-to-day business banking facilities, but we shouldn’t be. Clearly banks are not falling over themselves to pay interest on business accounts, but many may provide useful ancillary services and introductory free banking periods. Gone are the days of your bank being a bank for life, so look at the features offered and decide whether they are required for your business – if not, tell your bankers you don't need them and try to negotiate better terms or move banks.
2. EXISTING BORROWING
Make sure you discuss your existing finance arrangements with your bank regularly. Interest rates are low and will only rise. Whilst banks are not currently overly generous with the terms of business loans and overdrafts you can bet your bottom dollar (or pound) that when the base rate rises the interest charged on new loans will rise as well. So if you’re able to refinance now for a known period of time, with maybe even a fixed interest rate, you’ll likely be better off in the medium to longer term.
3. PROFESSIONAL INSURANCES
All companies are of course required by law to provide both employer and public liability insurances, and for some professional liability is a must. But how many small businesses actually shop around when the policies come up for renewal, to see if there are better terms or cheaper costs available? Many will also have an ‘off the shelf’ policy which doesn’t necessarily fit with the business itself, maybe not taking account of offsite visits and so on. Shop around as soon as you receive your renewal notice, ideally using a broker who has knowledge of your industry.
4. BUSINESS GRANTS
When was the last time you investigated Government or EU grants that might be available to you, especially in the development or testing of new technologies or marketing provision? Grants of up to £250,000 may be available. Take a look at http://bit.ly/iUdROt for useful information on getting a grant in 2011.
5. LTD COMPANY, PARTNERSHIP OR LLP?
With upper rates of income tax now at 50 per cent, and an increase in the levels of both employee and employer national insurance rates, there has never been a more important time to revisit whether you should operate as a limited company or a partnership/sole trader. Speak with your tax advisers and get them to take you through the pros and cons of each, not forgetting to look at the limited liability partnership route.
6. BUSINESS SUCCESSION PLANNING
Have you ever considered what happens to your company in the event that you or one of your business co-owners dies prematurely or is forced to retire early due to ill-health? Would you be happy if your company could be influenced by the family of a former business partner as a result of them inheriting an interest? Protecting yourself and other shareholders or partners is financially sensible, provides a formal structure to work to, and could also protect the value of the business from the tax man. Simple ‘life and serious illness’ insurance can provide financial compensation, giving both the remaining owners and the families of the owners peace of mind and security. The same can be said of business loan protection, which many banks now require again as a requirement for new finance. Shop around though, as these insurances can vary tremendously in price, especially if you normally only deal with your bank; speak with your professional advisers about the structure appropriate for your company.
7. KEY MAN INSURANCE
Do you have a star salesperson, or a key technical person – someone that without whom the business would suffer financially for a period of time due to loss of revenue, recruitment costs, delays and so on? Once again, consider insuring your business against this financial loss in a similar way as above.
The National Employment Savings Trust is the new workplace pension being rolled out across the UK from 2012. From this point all employers will be required by law to make contributions to a pension scheme for their staff. It will be phased in over a few years but it is time to start budgeting for this additional expenditure to your business, as minimum employer contributions will be set at around three per cent of an employee’s salary.
9. STAKEHOLDER PENSIONS
Whilst we wait for the above to start there is still the legislative requirement for all businesses with five or more staff to have in place a stakeholder pension scheme. There is no commitment to contribute at present, but there is a requirement for the employer to promote the scheme to staff and make payments to it available via payroll, or face fines of up to £50,000.
10. EMPLOYEE BENEFITS
It may not seem appropriate in these days of austerity to add to the benefits you give to your staff, but consider the merits and possible tax advantages they have, as they may offer a way of providing valuable extras to staff, possibly in lieu of a pay rise. Typically these include private medical care, pension contributions, life insurance, access to a childcare voucher scheme and so on. Many provide personal cost savings and tax advantages to the employee as well as you the employer.
All statements concerning the tax treatment of products and their benefits are based on understanding of the current law and HMRC practice as at the date of publication. Levels and bases of, and reliefs from, taxation are subject to change.
NEED TO KNOW
Mark Ireland DipFA is an independent financial adviser at Barton Financial Planning Ltd. He has been providing tailored financial planning to small and medium sized companies and their owners, as well as private individuals, trustees and charities, for nearly twenty years. Should you wish to discuss any aspect of financial planning, whether for you personally or for your business, Mark is contactable by email, email@example.com or by phone, 020 8922 9140.