Why Financially Successful Business Owners Can Still Feel Out of Control

Your business can be doing well financially but you can still feel uncertain about where your personal finances are heading.

For many business owners, wealth has built up gradually and unevenly. For instance, you might have various pensions opened for tax reasons, personal savings and investments built up from good trading years, and surplus cash held in the business “just in case”. You may also be counting on the future sale value of your business.

Income from a business can change year to year, as do tax rules. And decisions about personal finances are often dictated by what the business needs at that moment. These challenges can make it difficult to see the overall picture for you personally.

What practical steps can you take to make sure that your current arrangements will help you to meet your future plans?

Start by getting everything on one page

Would you find it hard to answer the question: “What do I have, and where is it held”?

If so, it would be worth pulling together a basic summary that covers:

• Pensions (including any old workplace schemes).
• Personal savings and investments.
• Surplus cash held in the business.
• Mortgages and other long-term borrowing.
• Estimates on the eventual value of the business.

There is no need to make it complicated. A simple list with current values and how much is being contributed each month is likely to be enough to provide perspective.

Be clear about what each pot of money is for

A common issue can be that money has accumulated without having a clear job to do.

For example, cash in the business might partly be a buffer for emergencies, partly earmarked for a future tax bill and partly just an amount left over from good trading years. Or, you might be treating your personal investments as “long-term”, without thinking about whether that means saving for retirement, university costs, or something else.

Giving each pot a purpose can make your decisions easier. Cash that you need within the next few years can often be treated differently from money that genuinely will not be touched for a decade or more. Without this distinction, it can be easy to be too cautious or too exposed without realising it.

Question long-held assumptions

As circumstances change, it is good to pause and ask whether your key financial decisions are still based on current reality, rather than on assumptions that were reasonable at the time but may now be out of date.

For instance:

• If you are relying on the business to fund retirement, periodically sense-check what that might look like. Rather than working on a best-case sale value, think about what happens if the timing or value is different from what you expect. Is further investment in the business going to give the right payback for you, or is there another option that would be better for you?

• If you have been holding large cash balances in the business to cover uncertainties, ask what that cash is actually for now. Is it still needed for those uncertainties, or is it just sitting with inflation quietly eroding its value?

• If you have pensions or investments set up many years ago, look at whether they still make sense. Perhaps they carry higher charges than another equivalent investment, or perhaps they no longer fit with how you now think about risk and timescales.

Concluding thoughts

Stepping back and getting a sense of the wider picture of your personal finances can help to make sure that they are working in the right way for you. From there, it becomes clearer where you might need to take action and where things can be left alone.

If you would like help in making sense of your personal finances, give us a call. We would be happy to help you.