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How to manage your wealth like your business
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In summary
Our Wealth Manager, Rachel Evans, shares her tips on how to give your personal wealth the same special treatment as your business.
Why would anyone prioritise their business over their personal wealth?
If you’re involved in running a business, you’ll know that it can often be all-encompassing – both physically and emotionally. Businesses tend to have good governance, strong leadership, regular reviews, and a focus on maximising performance. As a result, for many, it means they are more focused on the business balance sheet than their own personal wealth.
In recent years, there’s been a lot to contend with, sharply rising prices, driven by global supply chain problems and the continuing war in Ukraine. As a result, many families have struggled to find time to review their personal finances, and dreams of charitable foundations, updating wills, travel and holiday homes remain on the to-do list.
How can I balance the books?
1. Plan
When the time comes to step back from your business, you’ll have some big decisions to make, and a structured and disciplined approach to retirement planning will help you to get there smoothly and securely.
Some people consider their business as their pension, but this can be risky as business owners often want to keep their capital tied up in the business to pass on wealth to younger generations. Now more than ever, pension contributions are complex, with limits within annual allowances making it more challenging to diversify assets away from company tax effectively. A financial adviser can help you explore all the available options, create scenarios and plan accordingly.
2. Have a safety net
Of course, you’ll want to make sure your business is the best it can be, but it’s important you don’t put all your eggs in one basket. As well as investing money into your business, consider diversifying across other asset classes, such as property, equities, and bonds. Having a range of investments could help to cushion the blow to your long-term finances if your business doesn’t perform quite as well as you hope and reduce the risk of relying too heavily on one entity. How you spread your investments across different asset classes will depend on your attitude to risk and a discussion with a professional will help you to decide the best option for you.
3. Be efficient
Some business owners overlook the investment opportunities right under their noses – or feet; their premises. It’s possible to hold commercial property within a self-invested personal pension (SIPP) and each family member can own a share of the property in their pension fund. This could allow the company to buy the business premises where cash isn’t readily available. A financial adviser can advise you on the pros and cons of this strategy, and many others which will help you to capitalise on the wealth held in your business.
4. Leave a legacy
Family businesses provide an opportunity for a very special legacy, as the business can be passed between and tended by multiple generations. To protect your business so that it passes through the family intact, you must also protect yourself with insurance in case you become unable to work. You can also consider protection for other key people in the business and have a personal and a business will, alongside power of attorney, ensuring your wishes are followed in all eventualities.
Once you have decided whether you ultimately want to sell your business or pass it on to the next generation, you can plan for what you would like to do next, whether that be a world tour, buying an overseas property, charitable giving, or simply having fun and spending more time with friends and family.
If you would like to review your finances, please get in touch for a free, impartial conversation.
Important information
The information in this article does not constitute advice or a recommendation and you should not make any investment decisions on the basis of it. Investors should be aware that the price of investments and the income from them can go down as well as up and that neither is guaranteed. Investors may not get back the amount invested. Past performance is not a reliable indicator of future results. Changes in rates of exchange may have an adverse effect on the value, price or income of an investment. Brooks Macdonald does not provide tax advice and independent professional advice should be sought. Tax treatment depends on individual circumstances and may be subject to change in the future, so you should seek independent tax advice, as to your own position.
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