Practical Financial Planning Tips for UK Entrepreneurs

Establishing and managing a business is a very rewarding experience, but it comes with its setbacks and benefits. As a business owner, you are probably eager to grow your business, produce goods and meet the needs of clients and customers.

Managing your personal finances is just as important as managing your business finances. Effective financial planning will result in your efforts ending up with long-term personal wealth and security. Without direction, it is all too simple to commingle personal and business funds, forego savings and lose out on chances to build.

The First Step

One of the main actions any business owner can take is to make sure there is a clear separation between business and personal money. It can seem convenient when you’re starting to pay business-related expenses out of your personal bank account but it can create huge compounding problems. Merging funds makes it very difficult to account for your business’s actual profitability. You’ll never really get a simple, clear picture of how much you’re receiving and how much you’re expending and you’ll find it hard to be able to do informed business decisions. 

It’s also an accountant and tax nightmare. When it comes time to pay taxes, you’ll spend hours and hours working out personal expenditure and actual business expenditure. Opening a dedicated business bank account from day one is a simple move to make and it creates much clarity as you can always see exactly how much money you’re receiving and how much you’re expending with your business. News Cooper is a great resource to learn more!

Building a Financial Safety Net

Entrepreneurial life is often unpredictable, as income is unpredictable and surprise expenses can arise at any moment. An emergency fund is a set of savings set aside expressly to cover surprise personal expenses like a medical situation, emergency home repairs or an unexpected drop in business income. Financial advisors generally recommend having enough money in your emergency fund to cover three to six months’ worth of necessary living expenses. 

Another method to create wealth is diversification across various asset classes. For example, investing with a forex trading brokerage is a form of diversification. The global currency trading marketplace is the most liquid and biggest financial marketplace out there and a broker like Eurotrader gives you access to it. The secret to profitable investing is to know how much risk you’re able to handle and to diversify a portfolio.

Strategic Wealth Building

Once you have a grasp of your budget and a decent emergency fund, you can begin getting your money to work for you. Building personal wealth is a component of long-term financial planning. For some entrepreneurs, this can be diversifying revenue streams beyond revenue from their main business. It may pay to consider investing in stocks and shares, bonds or real estate. 

Many business owners also venture into financial markets to create their wealth. Platforms operating as a trustworthy MT4 broker, like Eurotrader, provide advanced tools to help people handle their portfolio investments efficiently. The MetaTrader 4 system is highly rated for its superior charting capabilities and automated trading and is a favorite among active entrepreneurs who want to enter the markets.

Preparing for a Secure Future

Retirement can seem a long way away when you are struggling to set up a business venture, but planning ahead will help you considerably. Employees are usually auto-enrolled in a workplace pension, but entrepreneurs must arrange their own retirement savings. Thanks to compound interest, starting your pension early can grow into a large sum by retirement. UK entrepreneurs have several good retirement planning options. A popular choice is to open a Self-Invested Personal Pension (SIPP) because it has wonderful flexibility. By opening a SIPP, you are able to choose from a range of investments from stocks and funds to commercial property.

FAQ

Q1: How much should I pay myself from my business?

A: It depends on your profits and business type. Many limited company directors take a small salary (up to the NI limit) and the rest as dividends.

Q2: Pay off debt or save and invest?

A: Generally, it is a good thing to try to pay off high-interest debt like credit cards or personal loans first because the interest you are paying is generally greater than you would potentially earn by investing it.

Q3: Is it advisable to reinvest all profits back into the business?

A: Expansion comes from reinvestment, yet you have to reinvest and achieve a balance. Reward yourself and establish personal investment and savings as well. The business taking up all your profits ad infinitum might not pan out financially in the long term.

Q4: How can I secure my personal assets from business risks?

A: The ideal way to secure personal assets is to run as a limited company. This is a distinct legal entity, so if the business gets into debt, you are protected, and personal assets like houses are normally safe.

Q5: Is it worth having a financial advisor?

A: While not always necessary, having a trained financial advisor can benefit an entrepreneur. They can offer you expert counsel through tax planning, investment, retirement planning and insurance tailored to your unique situation as an owner of a business.