Finanical Planning for Business Owners

Financial Planning for Business Owners

Every business has its ups and downs… well maybe there are a few exceptions, but it seems a fair generalisation. There are lots of reasons for running a business, but “simply for the fun of it”, is not a sustainable approach as most businesses drain the owners of time, energy and money. There may be (and hopefully there is) a really valuable service or product being provided through the business – after all that’s what will make it successful. This invariably is based on a conviction and passion about serving a particular need in life, not everyone’s but certainly a “target audience”. So a business can have many valid merits and virtues. However it also needs to work for the owner and many business owners forget that it needs to serve them too. Indeed I would argue that it needs to serve them first, if it doesn’t it is unlikely to be sustainable and therefore end up serving nobody. Whilst customers don’t wish to be taken advantage of, the sensible ones know that a healthy business is far better than one on its knees, struggling to survive; it inspires confidence for future service and reliability.

What is your why?

Business owners therefore need to think through what they really want out of the business. This may change over time, it probably will. Importantly though, you need to pay yourself before everyone else. This doesn’t mean being greedy, it means ensuring that you aren’t left with, well… what’s left. The principal of “pay yourself first” is well established and most employees will be familiar with it. You get a salary and then your bills are paid.. but noting that someone else gets paid at the same time – your State pension (NI) and the taxman – who clocked on many years ago that being paid first, each month is a reliable way to secure that payments arrive.

Business Owners have far more options

However, for the business owner it goes deeper. Paying yourself first also includes money for the future – such as a pension pot. This shouldn’t be left as a last expense, but a first expense. I was working with a business owner this morning, who is building a successful company and gradually employing more staff, taking on new premises and so on. As with all business owners there are more options and solutions for great financial planning. Those we discussed today were never selling the business, but building it so that dividends can be paid until death, but with others (a good pair of hands) taking over the management at some stage (ideally well before “retirement”). Another option is to build a value into the business, so that someone else might want to buy it and figuring out, how much the after tax and sales costs the sum needs to be. Thirdly, simply get the company to pay into a pension scheme, a business cost and part of the owners remuneration. There are other options too, but great financial planning will outline the options, help quantify the figures and build a plan that achieves the right results, knowing what returns are needed. All in all, empowering business owners to look after themselves, so that they can look after their staff and their customers.

Dominic Thomas: Solomons IFA

Finanical Planning for Business OwnersDominic2023-12-01T12:39:01+00:00

Co-Op has lost the plot and now follows Animal Farm

Co-Op has lost the plot and now follows the one for Animal Farm?

A considerable proportion of investors do not want returns at any cost. This has resulted in a considerable growth in the number and range of ethical investment funds since the first (Stewardship) was offered in 1984 by Friends Provident. The year has today provided an unhelpful Orwellian twist in the tale as I read with jaw-dropping bewilderment at the poor judgement that has been on public display in the once warm and cuddly “Co-Operative”. The news re-reported within my own trade press (FT Money Marketing) cites the story broken by the Observer which makes Animal Farm an even more vibrant metaphor for the suggestion that some are more equal than others.

The report that Euan Sutherland is set to pick up a financial package of £3.66m this year with a basic salary of £1.5m will surely make blood boil as savers and investors are left wondering how on earth a co-operative could possibly end up with such a disparate share of risk and reward. Nothing good can come from the report that suggests that more than £24million will be paid to 8 (eight) Co-Op executives over the next 2 years, despite the Bank almost collapsing in spectacular style (with a £1.5bn black hole) and making thousands of redundancies.

The Co-operative online bank customers at Smile will presumably provide a quick migration to any other bank that at least isn’t attempting to claim being anything other than a Bank. Any informed customer will be rather outraged by what has been going on at the helm of what used to be an “ethical Bank”. It has been saved by private equity and the cultural shift or rather “modus operandi” has surely begun to reveal itself. To even have the nerve to have something called the “Ethical Plan” with the strap line “good things happen when we work together” one can only assume that they mean colluding with each other in the Board room rather than being “the most socially responsible business in the UK” you must be joking right?..

I found reading the Observer’s report “hugely disappointing” that yet again managers, not the owners are taking the lion share of the rewards, and so far being rewarded for failure with severance packages that could have only been dreamed up in the disconnected clubroom of arrogance and remuneration packages drawn up by “you scratch mine & I’ll scratch yours Ltd”. Yes I’m angry. Angry because Banking in Britain could be a lot better than this. Business is tarnished with understandable claims of greed and corruption. It doesn’t have to be this way, business should be leading not scoffing at the trough of self-interest.

If you are fed up with the Co-Operative, have a look at Triodos Bank, based in Bristol. This isn’t advice, merely a suggestion to have look and make up your own mind. To my mind, the grass is certainly greener… (the glass is anyhow).

Dominic Thomas: Solomons IFA

Co-Op has lost the plot and now follows Animal FarmDominic2023-12-01T12:39:01+00:00

The Devil Wears Nada

Another guest blog from Jim Parker, vice president of Dimensional, with a particularly witty and pertinent take on the way the financial services industry attempts to mimic the fashion industry, but leads investors astray. Over to you Jim…

The global fashion industry is fickle by nature, pushing and then pulling trends to keep hapless consumers forever turning over their wardrobes. Much of the financial services industry works the same way. Fashion designers, manufacturers and media operate by telling consumers what’s in vogue this year, thus artificially creating demand where none previously existed. What turns up in the boutiques is hyped as hip by the glossy magazines. So you “have” to buy it.

Likewise, much of the media and financial services industries depend on fleeting trends and built-in obsolescence to keep investors buying new “stuff”. Driving this industry aren’t so much the real needs of individuals but manufactured wants with short shelf-lives.

Just as in fashion, consumers jump onto an investment trend just as it’s peaking and when the market has moved onto something else. So their portfolios are full of mismatched, costly and impractical creations such as hybrids, capital protected products and hedge funds. These products tend to be created because they can sell. So in early 2005, Reuters wrote of how banks were manufacturing exotic credit derivatives for investors looking for ways to boost yield at a time of narrowing premiums over risk free assets.¹

Four years later, in the midst of the crisis caused partly by those same derivatives, the shiny new things were “guaranteed” or “capital protected” products as financial institutions rolled out a new line of merchandise they thought they could sell to a ready market.²

Some investors made the mistake of swinging from one trend to the other, ending up with overly concentrated portfolios – like a fashion buyer with a wardrobe full of puffy blue shirts. Now while some of these investments may well have found a viable market, it’s worth asking whether the specific and long-term needs of individuals are best served by the design and mass marketing of products built around short-term trends.

Luckily, there is an alternative. Rather than investing according to what’s trendy at any one moment, some people might prefer an approach based on long-term evidence and built upon principles that have been tried and tested in many market environments. Instead of second guessing where the market might go next, this alternative approach involves working with the market, taking only those risks worth taking, holding a number of asset classes, keeping costs low and managing one’s own emotions.

Instead of chasing returns like an anxious fashion victim, this approach involves investors trusting the market to offer the compensation owed to them for taking “systematic” risk or those risks in the market that can’t be diversified away. Instead of juggling investment styles according to the fashion of the moment, this approach is based on dimensions of return in the market that have been shown by rigorous research and evidence as sensible, persistent and pervasive.

Instead of blowing the wardrobe budget on the portfolio equivalent of leg warmers, this approach spreads risk across and within many different asset classes, sectors and countries. That’s a tried and true technique called diversification.

And instead of paying top dollar for the popular brands at the expensive department stores, this approach focuses on securing good long-term investments at prices low relative to fundamental measures. Buying high just means your expected return is low.

Most of all, instead of focusing on off-the-rack investments created by the industry based on what it thinks it can sell this week, this approach delivers long-term, made-to-measure results based on each individual’s own needs, goals and life circumstances.

To paraphrase the legendary designer Coco Chanel, investment fashion changes but style never goes out of fashion.

1. ‘Demand for Exotic Derivatives Seen Growing – Bankers’, Reuters, Jan 18, 2005

2. ‘Investing: Storm Shelters’ – Money magazine, Oct 1, 2009

Thanks Jim, for those that don’t get the title reference, here’s the trailer for an amusing and allegedly accurate portrayal of life in the fashion industry.

The Devil Wears NadaDominic2023-12-01T12:39:00+00:00

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