Over the next few weeks will be sharing blogs from our wonderful guest blogger Sarah Quirk of SarahQuirk Wealth Services. This week Sarah shares all her expert knowledge and financial tips for small businesses in the UK.
Many small business owners are too busy running their business to consider managing their own finances.
Here are some tips for small business owners to consider when looking after their own finances as well as the financial security of their business…
1: Separate your personal and business goals and expenses
Goals: Take time to distinguish between personal and business financial goals. When running your own business, it can be easy to put the business goals ahead of your personal goals such as planning for your children’s education or your retirement.
Expenses: Keep your business and personal expenses separate. This will make calculating tax and your company’s valuation simpler. Start by opening a separate business bank account and credit card for expenses. This will help to build your business credit score, should you need to secure extra business funding in the future.
2: Pay yourself a wage
When starting a small business it is important to pay yourself. You can start by setting yourself a very low salary while you are using capital to grow the business. Paying yourself a wage will test the profitability of your business. Many small business owners start by paying themselves an amount that covers the National Insurance threshold to make their salary tax-free.
3: Save for your own retirement
Some small business owners rely on their business to continue to grow and often believe they can rely on this growth to fund their retirement. However, it is important to consider that the business could underperform and not be able to fund your dream retirement. There is the added risk that using your business to fund your retirement makes you financially dependent on your business and causes unnecessary stress for you if it does not perform as well as you hoped.
It is important to save for your own retirement separate to your business, by setting up a personal pension. A pension is one of the most tax-efficient ways to save for your future. Your company can usually contribute up to £40,000 per year to your pension and receive corporate tax relief. You can also utilise previously unused allowance from the previous three tax years through ‘carry forward’.
4: Make sure you have the correct insurance in place
Unfortunately, the majority of business start-ups fail. It is important to take out appropriate insurance to cover both your personal and business assets. You are likely to need multiple insurance policies to protect your assets in multiple situations.
Small companies are vulnerable if they lose a key member of their workforce. However, many small business owners are more concerned with generating profits rather than considering the long term and protecting the business income. Have you considered what will happen to your business if you as the business owner were to get ill? Our Financial Advisers can find appropriate critical illness and/or income protection cover to protect you and your company. Policies can be tailored to your company’s needs.
Sarah Quirk Wealth Associates offers a small business financial planning service and we will work with you to review your current policies and to ensure you have the correct insurance policies in place for both your personal and business circumstances.
5: Diversify your investments
Many small business owners invest their assets back into their own business. However, this increases the level of risk. You should consider investing outside of your industry to diversify your investments and spread the level of risk.
6: Continue to plan for the future of your business
Careful research and planning can determine the success of your small business.
It is important to continually track business expenses; if you are unable to do this yourself, you should employ someone or consider using an accountant.
You need to establish a monthly and annual budget for your business and stick to it. This is particularly important when starting your business. You also need to ensure your business is financially viable and able to generate enough revenue to cover your expenses.
7: Create a business succession plan
You should have a business succession plan or exit strategy in place for your business. You may not want to think about the possibility that you could leave your business, but it is important to have a succession plan in place for when you do leave the company. A succession plan will enable a smooth transition in leadership and address financial and tax planning.
Exit strategy advice provided by Sarah Quirk Wealth Associates may include products and services that are separate and distinct to those offered by St. James’s Place.
8: Choose the type of your company wisely
When starting out, many small business owners operate as a sole proprietorship. However, this means there is little distinction between your business and personal assets which can put your personal assets at risk.
A limited company has its own legal identity, which is separate from its shareholders and directors, even if it is run by just one person who is acting as both the shareholder and director. Setting up a limited company will protect your personal assets in case of a lawsuit.
Tax requirements differ depending on the type of company you choose.
9: Tax relief for working from home
If you have to work at home on a regular basis, either for all or part of the week, including because of COVID-19, you may be able to claim tax relief for additional household costs. For example, additional costs for heating, metered water, business calls, and for equipment costs, such as a laptop, chair, or mobile phone.
You can’t claim for tax relief if you choose to work from home and you can’t claim for costs that would stay the same whether you were working at home or in an office, such as mortgage interest, rent or council tax.
You can either claim tax relief on:
- £6 a week from 6 April 2020, without the need to keep receipts; or
- The exact amount of extra costs you’ve incurred above the weekly amount – you’ll need evidence such as receipts, bills or contracts.
You will get tax relief based on the rate at which you pay tax and more information is available via the link:
The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.
The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax reliefs depends on individual circumstances.
At Sarah Quirk Wealth Associates, our corporate financial planning service will help prepare your business for the future and help protect your assets.
We can also help small business owners to achieve their personal goals. Contact us to find out more about financial planning for your business.
The Partner Practice is an Appointed Representative of and represents only St. James’s Place Wealth Management plc (which is authorised and regulated by the Financial Conduct Authority) for the purpose of advising solely on the Group’s wealth management products and services, more details of which are set out on the Group’s website www.sjp.co.uk/products. The titles ‘Partner’ and ‘Partner Practice’ are marketing terms used to describe St. James’s Place representatives. SarahQuirk Wealth Associates is a trading name of SarahQuirk Associates Ltd.
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