Are you self-employed or a small business owner? Have you ever thought about how the business would survive if you were unable to work for an extended period of time, or if you will have enough savings to live comfortably when you retire? What about if a key person or partner was to leave or die? If so, there are some important considerations to help protect you and your business.
Financial planning for business owners varies from the needs of individual advice. Precision Wealth Advisers understand small business owners' needs and can work with you to put in place a strategy that will protect your interests and all other parties involved.
Small business owners must consider the following 5 key points:
Superannuation & Investment
As you already know, working for yourself means that nobody is contributing to your superannuation and retirement except you. This means you must allocate funds to ensure you will have enough savings for your future. Did you know almost 25% of small business owners in Australia had no superannuation at all in 2012, according to research conducted by the Australian Super Funds Association (ASFA). Relying on the sale of your business for retirement is not a comprehensive strategy. You may not be able to sell when you like or the business may not be worth what you are expecting, especially without you as the operator.
Contributing regularly to superannuation not only provides security for your future, it also provides an effective tax strategy as contributions are taxed at a lower rate when compared with your personal income. A tax deduction for your superannuation contributions is made at tax time and contribution caps apply so it is important you stay below the maximum annual cap to avoid the penalty tax.
Superannuation is not the only option available to provide for your future. A diverse investment portfolio can provide additional income or build towards your retirement goals. Depending on your situation and risk profile, we can advise on a structured portfolio which will meet your needs and give you access to funds when you require it. This is an added benefit when compared to superannuation as withdrawals must comply with a condition of release.
Cash flow and access to funds when income fluctuates is a major consideration for people who are self-employed or small business owners. A plan must be created to identify what is needed for ongoing expenses, what should be done with surplus income, and what options are available for your particular needs.
Insurance can play an important role in the protection of your personal life and the life of your business. There are a few options available to business owners which we may recommend in different circumstances. The main insurances we provide people who are self-employed or run a small business are income protection, business expense cover, key person insurance and buy/sell insurance.
Tax Effective STrategies
Business structuring and strategy can make a big difference when you pay tax annually or decide to sell the business in the future. You may be paying too much tax currently, or you may be required to pay Capital Gains Tax (CGT) on the total sale of the business if it is not structured to meet your needs.
Superannuation contributions can also play a role in reducing the amount of tax paid while contributing to your retirement savings. Savings in tax payable by increasing contributions each year can have a huge impact on your retirement when you consider the effects of compounding interest over a working life.
Estate planning is a topic a lot of people put off. It is however important to have a comprehensive will in place to distribute assets and wealth among your estate, according to your wishes, in a tax effective manner. Having a buy/sell agreement in place if you are in partnership or own equity in a business is also very important for business owners. The death of a key person or partner could potentially destroy a business or force remaining partners to sell if an agreement is not in place.