by Tim Gul In this issue our regular columnist, Tim Gul of the St. James’s Place Partnership, looks at the options that are available to protect your business.
To receive a free guide covering ‘creating financial independence’ produced by St. James’s Place Wealth Management, contact Tim Gul of the St. James’s Place Partnership on 0794 929 3323 by email
tim.gul@
sjpp.co.uk or visit
www.sjpp.co.uk/timgul
PLAN AND PROTECT FOR THE FUTURE
SME businesses are the lifeblood of the British economy. Latest estimates show that 13.7m people currently work in 4.8m small businesses in the UK. Every one of these businesses is different in its own particular way. Owners will have their own individual goals and aspirations, both for themselves and the company.
Inevitably they will all have one thing in common - they will be focussed on the day to day challenges of running their businesses successfully. All of this takes time, commitment and determination.
And it means that owners have little time to think about their own financial objectives, or the protection of the business they have created. As a result, two crucial elements are being neglected or often completely overlooked by huge numbers of small business owners - protection and planning.
Let’s take protection first. Alarmingly few owners are protecting their businesses adequately. According to a major survey carried out by Legal & General through the British Chamber of Commerce, a £1.1 trillion ‘gap’ in business protection has been identified.
The research found that 44% of business owners expected their businesses to fold inside 12 months of the death or critical illness of a key person, and only 4% of owners had any shareholder protection.
Considering the fact that key directors and shareholders are the most important assets of any small business, these are disturbing statistics. Key people keep a business alive - they make it work, create wealth, help it grow and make it a success. Looking after them should be a fundamental part of any corporate financial planning.
A business could suffer a devastating setback if a partner suddenly became unable to work, a key person became critically ill, or a major shareholder died. Without proper protection, a lifetime of hard work could be lost. Owners could suddenly find themselves staring into an abyss of lost profits, a reduction in the value of the business, the recall of loans and the loss of key customers.
Proper protection can help overcome this. Key person protection provides death and disability cover, and loan and liability protection, while critical illness protection provides comprehensive cover against a wide range of serious medical conditions.
Share purchase protection and partnership assurance are vital in a small business in the event of a serious illness or death of a shareholder, ensuring business succession and family legacy. Business interests would be protected and a shareholder suffering from a critical illness would have enough money from the sale of his or her part of the business to help them recuperate.
The second area of serious neglect is planning. Every owner of a privately run business should have an exit strategy plan - yet surprisingly few actually do.
But even if the owner decides not to sell in the end, every business should be being built with a view to being sold.
An exit strategy allows the shareholder director to leave the company in the most efficient way possible and with the maximum cash in hand after taxation. And tax planning now is likely to be easier and less disruptive than paying tax later.
What is more, planning an exit strategy gives confidence to co-directors, employees, family and clients - not to mention the bank.
A wide range of financial planning tools can be used in preparing an exit strategy.
These include international investments, cashflow injections to support the balance sheet and facilitate exit plans, retirement planning, corporate protection and capital tax planning which, if planned effectively, can reduce or remove the twin threats of Capital Gains Tax and Inheritance Tax.
Confronting these challenges at the same time as running the business is a daunting prospect, and advice from a wealth management specialist can help owners meet their aims while concentrating on managing their business.
WORK - 15
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