Financial planning 101: for when you’re starting out in business
News update – Government support - the Omicron variant
On 21 December 2021, the Government announced new measures to support businesses affected by the Omicron variant of covid-19.
- Businesses in the hospitality and leisure sectors in England will be eligible for one-off grants of up to £6,000 per premises
- Discretionary funding of more than £100 million will be made available for local authorities to support other businesses
- The Government will also cover the cost of Statutory Sick Pay for Covid-related absences for small and medium-sized employers across the UK
- Further funding of £30 million will be made available through the Culture Recovery Fund, enabling more cultural organisations in England to apply for support during the winter.
For more details, see here.
Levelling Up Fund and block grants
In his October 2021 budget announcement, the Chancellor promised £1.7bn of funding through the Treasury’s Levelling Up Fund to over 100 local areas to help improve infrastructure, fund redevelopment of cultural landmarks and improve services.
The Scottish, Welsh and Northern Irish devolved administrations will also see an increase to their funding in large block grants, each year by £4.6bn, £2.5bn and £1.6bn respectively.
News update: Recovery Loan Scheme extended to 30 June 2022
The ‘Recovery Loan Scheme’ was announced in March 2021 to replace the Bounce Back Loan and CBIL programmes which have now ended.
Starting from 6th April 2021 the scheme gives lenders an 80% guarantee on eligible loans of £25k - £10 million. This aims to provide lenders with confidence when providing finance to assist businesses in the UK.
This Scheme is additional to any other support accessed under the Covid-19 guaranteed loan schemes, meaning that it is open to all businesses.
NB: all businesses in Scotland, Wales, England and Northern Ireland will be able to access this Scheme.
News update: Help to Grow scheme. March 2021 Budget Announcement
The Government has announced its new ‘Help to Grow’ UK-wide Scheme, which comprises of two elements.
- Management: The Scheme helps SMEs to upskill by providing a management training programme in partnership with industry. It combines a national curriculum delivered through business schoolss with practical case studies and mentoring from senior professionals. Topics will range from marketing to finance management. The programme spans 12 weeks and is 90% Government subsidised to assist SME and medium sized businesses with support to grow their business, increase innovation and flourish.
- Digital: with businesses having to establish a digital presence, the Government aims to turn this into an opportunity to develop digital skills. Through the Scheme, businesses will have access to online expert training and impartial advice for free, in addition to half price on new productivity-enhancing software (worth £5,000).
NB: both programmes under the Scheme will start in Autumn 2021 but businesses can register now at gov.uk/helptogrow
In light of the ongoing threats to business posed by the Covid-19 crisis, we’ve prepared the following guidance to assist sole traders and limited companies.
For more information on what measures are available to you now and in the future to protect you and your business, please follow one of the following two links that’s most relevant to you:
Sole traders – How to manage money risks when you’re a sole trader
Ltd companies – Managing and taking money out of your limited company
As well as updating our guidance, we’re also keeping up to date with the latest announcements over on our blog:
Bounce Back Loans
From Monday 4th May, there will be a new fast-tracked loan scheme for small businesses. The scheme aims to provide businesses with much-needed finance within days, with loans backed by a 100% guarantee from the government for sums between £2k–50k.
Visit the government's website here for more information.
You may also want to keep up to date with the government’s own COVID-19 guidance and documentation via the gov.uk website
If you're unable to run your business during this time, you should talk to your accountant and to your bank as soon as possible. They know of, and have early access to, the finance options that will be most suitable, and fastest, to help your particular business.
Setting up a new business is an exciting and exhilarating time, you have lots of ideas, bundles of energy and ambitious plans to grow.
In the early days of a business, financial planning may appear to be well down the list of “things I’d like to do”. But it's important to ensure you have the right plans in place to protect your company as it grows.
These plans should span the spectrum from ensuring the business is protected in the event of you not being around (through death or illness), right through to how you invest your money when you are a roaring success and (maybe) sell up!
Why is financial planning important for business owners?
Not only is it important for building a strong and successful business, it's also important to do so as others expect you to plan responsibly.
No one sets up a new business to lose money. Nevertheless, rather than just focus on your profit and loss accounts, you should be considering others who are financially invested in your business.
These stakeholders might be:
- your investors (shareholders), who've provided your all-important financial backing or
- other forms of lender, who help you to finance your plans
- fellow directors or partners who have a major stake in your future success
- your staff, who expect to be paid and have staked their career choices on you - some of them may even hold share options in your business
- not to forget you and your family, as you may well have had to make significant financial sacrifices to start your own business.
Getting started with financial planning
The 3 magic questions
Our financial planning experts, Redbourne, ask their clients 3 important questions when they're starting out in business:
How will your business continue to operate and be successful if you, or a fellow director/partner, is not around due to death, or serious illness?
If you die or fall ill, how will you ensure your family are treated fairly and receive the fair rewards for your effort in setting up the business?
In that same scenario, how will the shareholders in your business realise the full value of their investment?
Prove your answers
If you're one of the few that can actually answer all those questions with confidence, then they'd ask you
“where is this all written down and agreed?”.
You're most vulnerable when you start - but the fix is easy
It's during this early stage growth period, when the income and profit may not yet be flowing through, that you are at your most vulnerable.
But there are some very simple steps you can take to tackle these issues successfully.
You'll need to tackle them in relation to 3 key groups.
1. Your family
Many of today's business owners have previously had higher paid, secure employment, with additional benefits such as pension, death in service and long term illness cover.
Giving this up is costly and may leave your family vulnerable. Often, you will have made a significant investment into your new business to get it going, but that investment activity can have little value to your family in those early days. You need to consider ensuring they are protected from outset.
Realistically, it may not be possible to replace these benefits in full from day 1 of your own business venture. These are often the first 'easy' sacrifices that founders and newbie freelancers make.
However, the good news is that you may be able to replace some of these benefits through the business, so that if anything were to happen to you, then your family could receive a lump sum payment to help secure their future.
While the measures that follow will not fit all new business owners, and personal circumstances will inevitably direct the options that you have, knowing these possibilities are available, will help you at least ask the right questions of a good financial adviser and/or insurance broker.
Financial planning solutions to protect your family
A number of your existing insurance policies may be adequate to cover any financial shortfalls, if you're unable to continue running your business.
So, you may already be covered for events that could put the financial security at risk.
When you're looking at insurance policies, make sure you identify what cover you need and cross-check whether you already have that covered somewhere else.
No point in paying twice.
Existing pensions and investments
If you have these already, again, cross-check their coverage and the terms or conditions attached to them.
(Check your shareholder agreement in relation to investments as this will usually cover what happens on death or if you suffer an incapacitating illness. )
Pensions especially can have valuable death benefits within their terms and so you should make sure you can evaluate their worth as your pension grows, and understand what that means for any family financial risks that you starting your own business may present.
Directors and company owners are able to benefit from a number of specialist arrangements that enable their company to fund life insurance cover, which is ultimately beneficial to that owner/director's entire family.
Unlike many other benefits, these ones will often not attract a tax liability - in fact, they can be highly tax efficient and kind to cash-flow. Make sure you ask a good financial adviser about them.
Family future financial protection often gets forgotten when you're spending every waking minute getting a business off the ground.
Redbourne's team can help you tailor the solutions that will give you greater peace of mind.... and cash-flow!
Message Farillio on live chat and we'll get you connected if you're interested in learning more.
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