Gathering information on small business accounts is the first step to helping you understand and identify key areas they may need advice on. These supply information flags such as turnover, profit, liabilities, reserves, a balance sheet, the number of staff, total payroll, and existing provisions such as pension and health scheme contributions. This will help you advise on the main components of a small business, being the owners and key people, the business itself, and then the workforce.
Small businesses are typically owner-managed and with that comes the inevitable inter-link of business, wealth and personal life. As such, advising this type of client follows the same path of a personal client, in terms of looking at hierarchy of needs and financial priorities.
Key person and shareholder assurance:
Small business owners will often view their business as their investment and retirement pot, and so until profitable reserves and sale value is built up then the basic priority tends to be orientated to protecting the owner(s) and the business.
If something happens to the owner in terms of illness or death then both the business and employees will suffer alongside the owner’s dependents. This leads to a basic need for key person assurance to put required funds back into the business to pay off debts, cover lost profit or bring in a replacement so that people’s jobs are safeguarded. Equally, shareholder protection and income protection should be considered to put much needed money into the owner and family’s hands in the event of long term illness, serious illness or death.
There will be circumstances whereby the business is just a one person owner, and so there are no other shareholders to acquire the owner’s shares and continue this business. In this case, then putting in place a company sponsored relevant life policy to compensate the owner’s family for the loss of the business may be more suitable.
A common focus of small businesses is looking at tax efficient profit extraction. If not already doing so, then salary and dividend planning is the usual starting point so that the owners can drawdown more money tax efficiently saving personal tax and national insurance. This is where you need to involve their accountant or generate a referral to an accountant, building your professional connections in the process.
Pensions being tax deductible naturally forms an important planning vehicle for small businesses, and ultimately the owners, as part of a profit extraction strategy. But pensions do more than a save tax and extract profits. They put money aside for the owner’s future, which is ring-fenced away from the business, making the owner less reliant on the future sale value of the business (very important for single person businesses) and providing a future business planning vehicle.
Most owners would like to own their business premises and a pension provides a great way of facilitating this. Holding your business premises with a pension is generally a good commercial decision and mutually beneficial to the owner and the business. This is due to a number of factors; the business rents the property from the pension at market rates and is tax deductible, the rental income is paid into the pension free of tax and accumulates within the pension fund, and the business premises is ring fenced within the pension away from creditors.
There are many ways you can assist the business client with their workforce. This may range from helping them with their employer obligations such as auto-enrolment, to helping the business attract, recruit, and retain staff by way of employee benefits. This does not need to be a great expense to the employer, and simple low cost solutions are generally well appreciated in today’s austerity climate. For example, low cost health cash plans to assist employees with dental, optical, and other health costs they would normally have to fund personally are generally well received.
These processes can give small businesses the advice they need to set a strong plan in order to make profit and secure the future of their business.