Income protection insurance, critical illness insurance, life cover and pension planning - all important things to consider when setting up your own business and becoming self-employed. Good advice on these can reduce that giant leap for mankind to something more manageable – with just a little wisdom from your financial adviser. Here are some aspects to consider, with the emphasis on personal finance.
Make a plan. History shows that most small companies, if they are going to fail, fail in their first year. At the same time, you vastly increase your chances of survival if you set concrete goals that are above all measurable, not vague. A new business needs the breathing space to gather momentum, and businesses don’t breathe air, they breathe money. When you are the business, it’s your personal financial planning that is crucial.
Accounting for success. You may wish to keep your personal and business finances separate. Your financial adviser can explain the interest rates and tax advantages of the various savings accounts now on the market. Careful budgeting is needed to ensure that your pool of capital does not dry up, before the rainy season finally arrives.
Loans and finance: a remortgage can be an integral part of your business plan, and expert advice can help considerably in negotiating a loan secured on your home or property. Your financial adviser can take you through the wide range of remortgage options available, and identify those better suited to you.
Income protection insurance goes hand-in-hand with organising a remortgage, and there are various protection insurances designed to help with your mortgage and loan repayments in the event of illness or disability. For a new start-up, the cost of these can be based on your own earnings projections, or on the projected net profit of your company.
Setting up a pension plan: as a self-employed person you will have to look after your own retirement planning. You may wish to consider the conventional stakeholder pension, the more flexible personal pension, or even the self-invested pension plan (SIPP). The SIPP is often interesting to self-employed people, as it would enable them to invest in commercial property, including the premises where they run their business. This has the effect of making the pension fund the owner of the property, setting it beyond the reach of potential creditors if the business is hit by a dramatic downturn.
Employee pension scheme: if the business does well, and you take on additional staff, you may wish or be obliged to set up a pension scheme. From 2012, the government’s plan for personal pension accounts will require all employees to have a pension scheme in some shape or form.
Partnership Protection Insurance: if you are going into business with a partner, this insurance can protect you where your partner dies or cannot continue due to critical illness, and you need to pay out a sum to your partner or his dependents.
Get a regular ‘financial healthcheck’. Initiate an ongoing relationship with your financial adviser. He is the ‘money doctor’ you should meet for a financial healthcheck at least once a year, to ensure that your ‘financial metabolism’ is ticking over nicely. Every budget brings new challenges, but also new opportunites for salting away your hard-earned cash, and you have enough on your plate without having to analyse the Chancellor’s small print yourself. That’s what your financial adviser is for!
