I have been experiencing the promise of a great solution to improve what it is that we do for our clients, and how to attract more of the right sort of clients. At this point in my use of and experience with the new software, I am finding that I am, what Richard Tripp calls, becoming tribal.
I have read hundreds of books about entrepreneurialism, business and leadership.In fact its probably what I spend the most amount of time in my personal development outside of my immediate discipline as a financial planner. This is in part because I love business, to some people that sounds weird, but others of you will get it. I love seeing businesses thrive, creating jobs and value. I have always been interested in entrepreneurialism and business, which is why I did a Business Studies Degree after school, though frankly it was not the experience that I had hoped it would be. Unfortunately it wasn’t the right fit for me at the time, over the 4-year sandwich course, I enjoyed no more than a handful of lectures and the most memorable was about design, by someone who wasn’t even part of the Business School.
Anyhow, Richard Tripp has a great 30 minute video, highlighting the problems that many (probably most) businesses suffer from, which probably helps explain the high business failure rate. So if you are a business owner, or are planning to start one, have a look at his video. I’m not suggesting you sign up, but certainly have a look at www.povmethod.com
Dominic Thomas: Solomons
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
Many of you, most of you, won’t currently be running a business. You are not excluded from this option. If you view a business as a type of bank account you wont go far wrong. The issue is generating revenue and making profit. A major advantage that business owners have is that they can put many things through a company as expenses, such as cars, pension contributions and so on. There are rules. However a business owner of a Limited company has shares in the company which pay dividends. The amount of dividends paid out can be adjusted regularly. In essence many people in this scenario pay themselves a low salary (low enough to pay little or not tax and national insurance). The rest of their income is paid as dividends, which have a lower tax rate than employed or self-employed tax rates. Yes this is daft, but blame the Governments we elect and HMRC not me. True businesses pay corporation tax, but this is currently only 20% on the first £300,000 of profits and profit is after costs such as salaries.
Unleash the entrepreneur in you
Over the years your business can build up cash, investments, property, goods, services and so on – even goodwill has a price. As the business owner your main objective is to run a successful business that provides the income you want. However the structure of the business should not be overlooked. You might sell the business upon retirement, but tax may be relatively small in this respect due to entrepreneur’s relief, where the first £10m of gains are only charged at 10% tax. Why? Because the Government believes that entrepreneurs create jobs and wealth, risking their own capital in the process in the pursuit of a “successful business”.
However, keeping to our target of £20,000pa from age 65 a business is a shell into which any of the previously mentioned options (pension, portfolio, property) can be placed. Indeed one can place a commercial property into a pension owned by a business…with the pension charging rent to the business which is then paid back as pension contributions. All entirely legal, encouraged and workable in the right circumstances.
Setting aside various taxation issues, to achieve our goal, you need to have a business that generates £20,000 of profit a year. Whilst I wouldn’t wish to suggest that this is easy, is it as difficult as some would have us believe? £20,000 profit is £1,666 profit a month. The best business model is that of royalties. You do your work (say an album or book) and then it sells and sells. The royalties keep coming month after month for that work you did all those years ago. Now imagine that you have several “products” or services that achieve this. Anything from a design on a T-shirt to selling soap or widgets. A successful business is a money printing machine. However the biggest risk or blind spot that businesses face is failing to adapt.
Adapt or die?
In a world of rapidly evolving technology, this years best selling gadget is forgotten in 5 years. Technology is everywhere, not just in IT, in processes and systems. How you do business requires considerable thought. You are now probably not printing off your holiday snaps, or using a travel agent, or actually going to a Bank.. or…or… the world is changing and every business needs to adapt, that is the real risk to any and every business, however as an investment it can be ideal, provided that you only sell (if you do) when you don’t need to.
So I hope you will excuse me for not putting any numbers on this one, but it is a vehicle limited only by your imagination. However before we unleash your creativity, I think it best to blow your mind with some facts about that all very familiar but not well understood concept of inflation, which will challenge many of the numbers and assumptions that we have considered.
Dominic Thomas: Solomons IFA
Vicious Viral Email to Business Owners
If you are a business owner you may have received an email that appears to come from Companies House. The email suggests that a complaint has been made about your company. This is bogus. Companies House, whilst making use of webfiling services do not issue emails about complaints, which they, like you, take very seriously. Complaints against companies are always handled in writing when dealing with organisations such as Companies House. So the best advice is to simply delete the email – however be warned that you will get more. It is not clear what the intention is, be it placing trojan software into your computer or something else, perhaps as inane as wasting everyone’s time.
What if it wasn’t bogus?
Running your own business is a time consuming occupation and one that comes with many stresses, risks and rewards. However malicious the email, it does remind us all that taking the future well-being of your business for granted could be a little naive. Many business owners see their business as their pension, which may be entirely appropriate, but please remember some of the potential pitfalls – such as an inability to sell at the price you want, a radical change in your market, significant competition, timing and misfortune due to accurate (or otherwise) coverage of your business/sector/market in the media. Of course there is that insurance industry phobia – death or serious illness, that will or may prevent you from making decisions about your own business.
Plan your exit or exit your plan?
All of these issues can be addressed, as well as when you wish to finally leave the office. The best time to sell a business is always when you don’t need to. So if you are business owner or partner in a business, then it may be time for some proper planning to ensure your business works for you and not you for it.
Dominic Thomas: Solomons IFA