Financial solutions for entrepreneurs

Financial solutions for entrepreneurs

Author
Nick Rolf
Published
September 19, 2023

Support for entrepreneurs

IQ is there to help you put in place (and stick to) a financial roadmap so that you can achieve your financial objectives. But we can also help if you are an entrepreneur about to set up a business. We have a great deal of in-house expertise, but as a growing network of business professionals, we are extremely well-connected and can bring other people in or refer you to someone.

We can assist at three different stages of your company’s life cycle. In the early stages, we help you establish the necessary protections for your business. During the growth phase, we can help you explore options for developing employee loyalty. In the exit phase, we help you organise your personal finances before selling your company and guide you through the post-sale implications.

Setting up your business

You will have already decided on the structure of your company. You will know whether you want to set it up as a partnership, a limited company, a limited liability partnership, or something else altogether. Once you have a business model in place and you have what you need in the way of finance, you are going to need to give some thought to a succession plan. You may just be at the very start of your journey, but that does not mean that you should not think about what would happen if somebody key to the business were to die or find themselves incapacitated… or if their shares were to pass into the wrong hands.

At the heart of every successful business are talented, dedicated people. Many of those businesses would stop trading in a very short period of time in the wake of the death of a key individual. A key person insurance policy is designed to protect a company against the financial impact of the death of such a person – a revenue generator or somebody whose experience and expertise are essential to the company’s ongoing success. Should such a person die or become incapacitated, then a key person insurance policy would provide the cash injection needed to find somebody to replace them: it will cover the costs of incentivising them with a sign-on bonus or comparable inducement. IQ can help you put such a policy in place.

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A share protection arrangement enables the surviving owners to purchase the deceased owner's share of the business from the deceased owner's estate and ensures that the deceased owner's dependants have a willing buyer and cash instead of a share of the business. The loss of a shareholder can throw a company into disarray – such an agreement can help your business at a difficult time, offering financial stability.

Under normal circumstances, when a shareholder passes away, their shares become part of their estate which usually goes to the family: the family then owns the shares.

But under this type of policy, the other shareholders can buy back the shares. All parties stand to benefit from this type of insurance: the business gets to keep the shares, minimising disruption and ensuring a smooth transition, while the family receives financial support at a crucial time (from the monetary value of the shares).

There are different ways in which this type of cover can be set up – we can help you with this and ensure that the policies are set up correctly.

The growth phase

Once you have all these protections and insurances in place, you need to give some thought to your business’s most valuable assets: the people who run it. Knowledge retention goes hand-in-hand with talent retention, so you need to consider tax-efficient ways to structure compensation for your employees with a view to keeping them.

You might consider an Enterprise Management Incentive (EMI), for example. This is a government-backed initiative that offers tax-efficient advantages over a regular share scheme. And because it is government-backed, it is unlikely to face challenges, which adds to its appeal.

One of the biggest perks that businesses can offer their employees is a company pension scheme. Under new arrangements which came into force in 2012, all employers must now offer a workplace pension scheme and automatically enrol eligible employees in it. We can help you put in place a compliant pension scheme so that you fulfil your obligations as a business owner. If you are a small company a bespoke scheme might be more appropriate). We can advise you accordingly.

Selling your business

Selling your business involves complex fiscal and legal implications, as well as a fair amount of psychological and emotional upheaval. After all, it is the culmination of a huge amount of time and effort on your part. We can talk you through some of the challenges involved in a business exit and help you get your personal finances in order both before and after the sale.

You may want to sell your business because you have reached some sort of milestone, or because you want to release some capital to start your next venture. Or maybe you just want to retire.

There are tax matters to consider. When you sell, it is more than likely that you will have to pay capital gains tax, but there are a number of opportunities for tax efficiency that can lower the expense, including business asset disposal relief, business asset rollover relief, incorporation relief, and gift holdover relief.

Selling a business is a significant life event, and many clients experience a shock as they transition from working hard in their business to embracing retirement. In fact, for many, a measure of tedium sets in after about a year and they find themselves regretting the move to sunnier climes or the purchase of their yacht.

So it’s a good idea to do things slowly and take some time to reflect before making any major financial commitments. If you decide to move to a different country, for example, you would be well advised to rent a property for a year or so – rather than purchasing one straightaway.

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A discussion with us can help you understand what the financial future might look like for you. We can help you make sure that you are able to meet your long-term financial objectives in a way that is tax-efficient and in keeping with your risk tolerances. But, it is crucial to start the planning process before you sell your business. We can help you work out how much money would you be able to spend per year in retirement. Remember that once you have sold the business, you may no longer have an income, so making contributions to your pension may not be possible.

You may well find yourself having to “tilt” your investment portfolio so that it meets your income needs. A cash flow modelling exercise can provide you with a snapshot of your finances and give you detailed insights into what you will need in the years ahead. This is something we can help you with.

What structure should you consider putting in place for your wealth? Should you be utilising offshore bonds? And once you have the cash in the bank, how much should you invest? Should you gift some of it to avoid your beneficiaries having to pay inheritance tax at some point in future? Or should you put in place a trust structure?

It's important to bear in mind that selling is not the only exit strategy available to you. Selling a business can be a life-changing experience, and exiting your life's work can give rise to numerous challenges – both practical and emotional in nature. Before you embark on something so monumental, make absolutely sure that you have spoken to the right people and sought the advice of those who can offer you the help and guidance that you need.