Business Matters – Issue 17

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Retirement:

Planning makes perfect

Reading the signs:

Is it time to sell your business?

Building your business:

How managing your financial future starts now

Safety first:

Protection insurance for female entrepreneurs

Budgeting blunders:

Why do so many employees fall prey?

Retirement: Planning makes perfect

When it comes to retirement planning, do you envisage stopping work altogether, going part-time or starting a new venture in later life? Whatever your goals are, putting a plan in place now will help you bring these to fruition.

State Pension

The State Pension age – currently 66 for both males and females – was introduced back in 1948. While much has changed since then, it nevertheless continues to shape the way we approach retirement.

Lifestyles, healthcare, the nature of work and life expectancy have all massively moved on – and what’s more, the default retirement age was scrapped in 2011.

Furthermore, changes to pension rules in 2015 gave people increased freedom as regards accessing and using their pension savings.

However, for many individuals, the State Pension age continues to determine how they think about and plan for retirement.

Indeed, it can be helpful to have a goal in mind, and yet the notion of reaching a certain age and immediately entering full retirement is out of date and often unhelpful, according to Tony Clark, Senior Propositions Manager at St James’s Place.

“We’re trying to move away from that idea of retiring at a certain age, and towards a point where it’s about when you feel ready to make some changes.”

Control is yours for the taking

For many people, retirement’s no longer a one-off event – instead, it’s now up to you to decide when you’d like to retire and what you want in the years to come. Planning ahead has never been more important – after all, your post-work life could go on for several decades.

Tony comments:

“Getting away from the nominal age helps you to shift your mindset and think about what retirement means for you. You might reach a point in your planning where you’re ready to slow things down at an earlier age than you might have expected.”

Whether your retirement is imminent or several decades away, the first step in order to take control of it is to nurture an idea of what you want.

Nowadays, retirement might mean finishing work at the earliest opportunity or reducing your hours and continuing in some form of work until such time as you decide otherwise.

Alternatively, you might have post-retirement goals to achieve, a set amount of money you wish to leave for your loved ones or a new venture on the horizon.

Or perhaps you simply want the peace of mind of ensuring you’ll be comfortably well off during retirement – regardless of when you finish working.

Tony says:

“For many people, later life is about getting time back. You’re investing now to have the time to do what you want later, whether it’s running a business, working, volunteering, leisure or a mix of things.”

The next step is to meet with your financial adviser to ascertain what you need to do to realise your goals. After that, it’s a case of reviewing your financial plan and regularly coming back to it to check it still serves your purpose.

“Having a plan in place gives you the confidence to know that you can adapt as you need to and feel in control,” says Tony.

Easy does it

Many people believe it’s important for retirement to happen as soon as possible. But this depends on the individual – for some, their 50s is seen as the start of their retirement years, whereas for others it will be their 70s.

The key thing is to figure out whether speed really is of the essence or whether it’s more about the quality of retirement – regardless of how and when it happens. It might be that you need an extra couple of years to fulfil your plans, as opposed to having to take more risk to get there sooner.

Tony advises:

“You might aim for 60 but realise then that you haven’t saved enough, or decide you want to work for longer – so think about what ‘good’ looks like to you.”

Your eventual plan will no doubt be broad, with an investment-risk approach geared towards your personal needs and goals, alongside other factors that ensure you can maintain your pension contributions.

Such factors may include Income Protection and perhaps Critical Illness Cover – these are forms of protection insurance that help you meet your financial needs should you ever be unable to work due to a serious illness, ongoing health difficulties or an accident.

This serves as an important reminder about why formulating a retirement plan isn’t merely to provide for you in later life, but to also give you peace of mind and support your well-being in the near term.

Feel empowered

The idea that gradually easing into retirement is a feasible option is becoming all the more popular, with more and more people minimising their reliance on earnings over time and making a shift towards drawing on their pension assets. As Tony points out, this might take place over the course of a year or several years.

“We already see it now and it will become a normal approach to retirement. The value of advice is in helping you imagine what later life might look like, identifying the potential or the opportunities and pulling it all together in a plan that can then be put in place.”

If you’re currently planning for your retirement, why not contact your Wellesley financial adviser to discover more about the true value of financial advice?

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.

Reading the signs: Is it time to sell your business?

It’s important to recognise the clues that you’ve reached the end of your business journey. Our latest articles details first-hand experience to help you understand the signs to look out for.

Do the business

As soon as Ian Luckett and his brother, Steve, decided they’d had enough of “six days a week at the coalface”, he knew the time had come to sell his family’s coach-travel business – Lucketts Travel.

Their hard work had undoubtedly paid off over the years, with Lucketts becoming the largest coach operator on the south coast of England – employing 350 staff and operating a fleet of 160 coaches and buses. However, as the business had expanded, the brothers realised that handing over control to an owner with more experience of running a big company might be a wise move.

Ian comments:

“We weren’t necessarily that good at managing people. We were too much in the detail, and the business had grown so much that it needed a different structure. It needed to be more hierarchical, which meant it was going to be a different business. We knew it had to change significantly to carry on growing, and we knew going through that pain was going to be difficult for us.”

A sign of the times?

Selling your business counts among one of the most difficult decisions you will ever have to make as an entrepreneur, and the process can be long, stressful and at risk of collapse at any given moment.

That said, if you ensure the business is in good shape, has a proven track record and a clear plan of action for future growth, then a buyer will potentially be very interested. Not only that, but the proceeds can help you move onto the next stage of your life, whatever that might be. A Wellesley adviser can offer advice as to how to use the proceeds of a business sale to plan for your future.

There are a number of signs to look out for that may indicate that it’s time to sell up. For example, the realisation that you’ve achieved all you want to and are tired of the daily grind, much like Ian and Steve with Lucketts Travel. In 2020 they sold the business to National Express – the giant transport company listed on the London Stock Exchange. This enabled them to finish on a ‘high’ by handing over their successful business to new owners.

Ian notes:

“We didn’t really want that [daily] involvement. As much as we could have had people running the business for us, it’s never as easy as you might think it is. You’re still emotionally and financially invested in it. If you give someone else the train set to go and play with, they’re never going to be as invested as you are, no matter what they say.”

Prepare, prepare, prepare

Another sign that it’s time to action that exit strategy is the realisation that your skill set has taken your business as far as you can go, and a worthy custodian could therefore take it to the next level. The market might also be ripe for a sale, or you might be pressured to sell up due to unforeseen circumstances.

Come what may, it pays to be prepared as you head in the direction of a sale. In the years leading up to the deal with National Express, Lucketts Travel approached business adviser Elephants Child in order to prepare the company. Lucketts were thereby able to put a structure in place that would appeal to a potential buyer. Indeed, many entrepreneurs fail to do so because they’ve built the business based on their own expertise, which works while they’re running the company but not when they’re then trying to sell it.

Crawfurd Walker, Chief Revenue Officer at Elephants Child, says:

“Some people want to sell, but they’re not in the right shape. Seventy per cent of companies fail to sell the first time they do it because they don’t have the right structures and processes in place, or it’s too based around the business owner.”

Thanks to this work with Elephants Child, Ian was able to give Lucketts Travel a more defined structure and develop its senior management team. What’s more, he also started to gain a better understanding of his own skill set, empowering him to negotiate a sale of the business.

“I’m not an expert in anything, but I could talk to someone quite knowledgeably about a balance sheet, about a P&L [profit and loss account], about the inside of an engine, about an HR issue, about the law, insurance. I didn’t quite realise how much I knew about stuff.”

At Wellesley, we’re here to support you wherever you are on your business journey. Call us today!

Exit strategies may include the referral to a service that is separate and distinct to those offered by St. James’s Place.

Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place.The services provided by Elephants Child are separate and distinct to the services carried out by St. James’s Place and include advice on how to grow your business and prepare your business for sale.

Building your business: How managing your financial future starts now

Read on to discover how keeping an eye on your business and family finances now will allow your start-up to continue growing in the future.

Being an employee and running your own company are two vastly different tasks, yet many people are drawn to combining the two and becoming a start-up founder. We certainly see why, as starting your own business opens up many new and exciting opportunities; however, it also means that your personal and business finances will become intertwined.

As a business owner, you’ll have to start thinking differently about your money. It’s important to have an idea of what options are available for you, from arranging your own pension to understanding the financing possibilities available to SMEs.

So, where do you start? Speaking to an adviser at Wellesley will help to order all the pieces of the puzzle and allow you to gain a broader understanding of how to successfully manage your money.

In this article, you can find the answers to some of your initial questions about finances in the early stages of building your business.

Should I use my own money to start a business?

In the early days of a start-up, entrepreneurs often find themselves using at least some of their own money to get their business off the ground. Using existing finances – like personal loans and savings – will help to support the business in its primary stages, while external funding can boost expansion further down the line.

What are the external financing options once my business is up and running?

Ian Wood is Marketing Director of Capify, which provides flexible financing solutions to SMEs that have been trading for more than a year and have a minimum monthly turnover of £10,000. He says:

Business loans are the most common and well-known route – often from a traditional lender such as a high-street bank, but more frequently from alternative lenders, such as Capify, which offer short-term funding that is typically paid back via either daily or weekly repayments, making the management of cash flow easier.

“Other options to be considered include invoice finance, a facility helping businesses leverage their unpaid bills for an instant cash injection, and asset finance, using a firm’s balance-sheet assets as security to borrow money. These are often popular in sectors such as construction and manufacturing.

“Another possibility you may consider is a merchant cash advance – a flexible and unsecured short-term loan in which an upfront sum is given in exchange for a percentage of future sales – this can be daily, working with the cash flow of a business.”

How do I find business finance in the COVID-19 economy?

The impact of COVID-19 has left many industries in a tough spot, but many business have found support through external finance – either through government or private-sector channels. Wood continues:

“COVID-19 and Brexit have led to a challenging environment for many business owners. Additionally, there’s sometimes still a bit of a culture and attitude that sees borrowing finance as something that should only be done when there is an issue, such as cash-flow difficulties.

“However, the pandemic may have altered some of that perception, not least given the vast numbers of businesses that have accessed finance over the past two years – many for the first time. In fact, borrowing to fuel growth and scale more quickly is now seen as a brilliant way to use finance.”

How do I keep my personal finances secure while running a business?

Finding a balance between the need for ready cash for paying bills, your mortgage and unexpected expenses with the need for long-term planning, such as saving for retirement, is something that can easily slip by the wayside in the excitement, and challenges, of running a business.

Should the worst happen, taking out life assurance or income protection insurance will provide peace of mind if your business hits a roadblock – this is something many entrepreneurs overlook, yet is certainly worth considering for such a small sum.

Do I need to start my own pension?

Planning for retirement as a business owner is an important part of preparing for your future, and paying into a pension is a tax-efficient way to extract funds from your business.

Some entrepreneurs choose to make their business their pension, but this is a risky strategy because it relies on being able to sell it for a price that can fund your retirement. For most SME owners, the safest and most efficient way of saving for your twilight years is through a personal pension that you pay into via your company.

Claire Trott, Divisional Director – Retirement and Holistic Planning at St. James’s Place, says:

“If you’ve set up a limited company, it’s even simpler to set up a pension. Just make sure you pay into the pension through the company, because it’s the most tax-efficient way of doing it.”

Seek advice

When thinking about your personal and business finances, it’s a good idea to seek financial advice. The team at Wellesley Wealth Advisory can offer expert advice and help determine what might be the best options for your future and that of your business.

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 and are dependent on individual circumstances.

Safety first: Protection insurance for female entrepreneurs

Running your own business can leave you exposed to certain risks, but having the right protection insurance in place can enable female entrepreneurs to meet their financial commitments – whatever happens. Here’s what you need to know!

Flying solo as an entrepreneur, business owner or freelancer can be both lucrative and empowering, but it does leave you more open to certain risks. Falling ill or losing a key team member can badly affect your business and leave you with a diminished income – or none at all.

Here, we look at why it’s important to have the right kinds (and the right levels) of protection if you’re running your own business, from a female’s point of view.

We’re all at risk if we don’t take responsibility for our own financial protection; however, it can be a more pertinent issue for women, who aren’t used to seeing themselves as the breadwinners, and therefore don’t always fully recognise their value  ̶  both to their businesses and their families.

So, following International Women’s Day on 8th March, we are looking at how female founders can be empowered to safeguard themselves!

Bossing your job

Women are undeniably on the up in the world of work, pushing the boundaries of their careers in all directions. The number of females on boards is rising1, while recent years have seen a big increase in the numbers of women starting a business. Four years ago, just 17% of founders were female but the figure had risen to 32% by the start of 2020.2

What’s more, women are the breadwinners in a growing proportion of UK households. In almost a third of homes, they earn the same as or more than their male partners, according to research by the Office for National Statistics undertaken on behalf of insurer, Royal London. The figure was 22.3% in 2004.3 Due care and attention will need to be paid to protect this wealth – having a plan B ready to ensure that bills are paid and the company is protected in that dreaded worst-case scenario.

A balancing act

It goes without saying that female entrepreneurs experience the same stressors as their male counterparts, but one key difference is that they’re more likely to be called upon by their families to take on caring responsibilities.

There are plenty of stay-at-home fathers and male carers who also work for themselves. But looking after loved ones remains a mostly female task – women make up 62% of the 1.3 million people in the UK who are taking care of both children and elderly relatives, known as ‘sandwich carers’.4

The demands on their time don’t rule them out of running a business – in fact, these are the people who could benefit most from working for themselves, with working hours that fit around their family commitments. But it’s important that women boss their financial protection as well as they boss their job.

Protecting yourself, your family and your business

For any business owner, income protection is among the most important kinds of insurance to have in place. These policies pay out an agreed sum (often 50-65% of your previous income) if you have an accident or illness that leaves you unable to work, which is a vital stopgap that will ensure you can still pay your mortgage and other bills.

You may think that it’s an unnecessary extra on top of the mandatory cover that many businesses must take out. But it’s important to think long term – for example, do you have elderly parents who will need more support in five years’ time? If you couldn’t work, does the business have sufficient liquid assets you could draw on to support yourself – and can you guarantee that money will be there in five years?

There are a number of protection policies available to cover every kind of personal circumstance:

  • Critical illness cover pays out a lump sum, which can help ensure business continuity if you were seriously ill or if your partner died, while family income benefit pays a regular income if you die. Although it’s not something anyone wants to think about, it can be useful to sit down with a financial adviser to quantify exactly what your loved ones and staff would need to carry on if you were no longer with them.
  • Business owners also need to identify their right-hand person who can take the reins during big life events. This doesn’t only mean periods of crisis, but the good times too – could you leave your business in someone’s capable hands so you can have a ‘proper’ honeymoon, where you genuinely switch off from work?
  • Key-person cover is an insurance policy that employers can take out with regard to staff who are intrinsic to the running of the business – perhaps the finance director or head of sales. Policies cover the cost of replacing that person if they could no longer work for you, including recruitment or headhunter fees and training the newcomer up to the same standard.

This kind of cover and other insurance that can help with business continuity needs to be purchased through a financial adviser. They can also create a ‘menu plan’ of insurance policies tailored to your business and circumstances, which means you could have a single premium and one set of paperwork that provides various kinds of cover.

Insurance ‘menu plans’ often include discounts and other business supports, such as help with legal fees, recruitment costs or counselling for staff. Seeing an adviser for your insurance also minimises the administration of dealing with separate policies.

The value of advice

Before you make your decision, first speak to a financial adviser so that your financial liabilities can be assessed and you can be sure you have the right insurance for you.

Be sure to mention any existing general insurance policies you may have, so you can review your policy to ensure it continues to meet your needs. Even if the adviser is there to help you manage your business affairs, there may be ways they can wrap up aspects of your personal finances too. This is especially important for entrepreneurs who are so engrossed in managing their businesses that looking after their personal finances falls by the wayside.

Remember, you may be going it alone with your own business, but you’re not by yourself. A financial adviser can help you plan ahead for the best and worst of times. Speak to us today!

Sources

1 Hampton-Alexander Review, November 2019
2 2020 Report on Gender and Small Business, UENI, July 2021 (Based on a survey sample size of more than 22,000)
3 Rise of the female breadwinner: woman earns the most in one in four households, Royal London, May 2020
4 Sandwich carers dataset, Office for National Statistics, January 2019

Budgeting blunders: Why do so many employees fall prey?

Neglecting to set aside money on a regular basis can’t always be blamed on financial hardship – read our latest article to learn some simple budgeting tricks that could make the world of difference.

The stats don’t lie

Well-being isn’t just about your physical and mental health – it’s about your financial health too, and it’s vital for individuals, the workplace and the economy as a whole. Yet many people in the UK struggle with money problems, as seen by the fact that 11.5 million adults have less than £100 saved.1

It could be said that poor financial well-being is holding the UK back. Yet the inability to save isn’t always down to financial hardship – sometimes, it’s actually due to poor budgeting at the beginning of every month.

Workplace woes

Money problems can negatively impact on a person’s competence in the workplace.

Andy Haldane, the former Chief Economist of the Bank of England, explained in a speech that everyone’s decision-making ability, patience, and ability to improve their education, skills and experience are hugely influenced by their financial environment.

A person’s ‘cognitive bandwidth’ can be consumed by worrying about how to meet their day-to-day needs – reducing the amount of available brainpower to dedicate to their work. Surprisingly, such effects can even be seen in experiments where people were asked to simply imagine suffering a financial loss.

In the instance where employees have insufficient savings to see them through life’s twists and turns, workplace productivity is reduced and people’s health suffers – leading to more sick days. How can employers help? They can step in by helping staff become more financially capable, which will be paid back with better workplace performance and fewer demands for pay rises.

Habits of a lifetime

Psychologically speaking, people inherently prioritise current needs and wants over those of the future. This ‘present bias’ means that even those who are up to speed about how critical financial planning is can nevertheless struggle to fully carry out their intentions to budget, reduce expenditure and put money aside for the future.

Financial difficulty can make the focus on the present moment all the more intense, making it even trickier to consider future needs. This in turn feeds into a vicious circle, where those who struggle financially end up worse off.

It’s generally the case that people adjust their lifestyles according to their salaries and therefore get accustomed to a certain standard of living – whatever their income might be. For instance, someone on a salary of £25,000 may have living costs and spending habits that account for most of their income. If their income were to increase to £40,000, £50,000 or £60,000, they might subconsciously change their lifestyle to match their means, and find that the majority of their income gets swallowed up.

Understanding that there’s little correlation between higher incomes and increased happiness can help you to get over this – after all, once people reach a salary level where they can live comfortably, any extra money doesn’t have a huge impact.

Indeed, once your basic needs and some of your lifestyle ‘wants’ are satisfied, spending more money on day-to-day desirables does little to boost life satisfaction.

Top tips

  • Distinguish what your ‘needs’ and ‘wants’ are, and decide how much you want to spend on each, on a monthly basis.
  • Set up a direct debit to a savings account for immediately after payday – save money first and then live off the remaining amount by sticking to a budget.
  • Prioritise your pension. While extra disposable income today won’t make you any happier, the future ‘you’ still needs enough savings to live a comfortable life.

Our advisers at Wellesley can help your staff improve their financial well-being, so strike up a conversation with us today.

Sources:

1 The UK Strategy for Financial Wellbeing 2020-2030, Money & Pensions Service, January 2020, based on a survey of 5,974 adults