SNIPEF

Planning for the future is crucial for any business, whether you operate as a sole trader, a partnership or a limited company. In an interview with PlumbHeat magazine editor Gregor Millar, Marc Millar from SNIPEF Affiliate North Wealth Management shares his expert insights into the essential aspects of business planning.

What is business planning, and why is it important for businesses of all types?

Business planning covers a broad range of areas, tailored to the specific needs of each business. It is a critical consideration for any business as they grow and evolve.

Key aspects of business planning include shareholders' agreements, personal and business protection, tax mitigation (encompassing income, dividends, costs and pensions), succession planning and preparing for potential business sales. Additionally, it offers individual protection and peace of mind for business owners.

Whether you operate as a limited company with directors and shareholders, or as a sole trader or partnership, every business should implement some form of business planning. This ensures that the interests of the business, its owners and their beneficiaries or next of kin are safeguarded for the future.

What is a shareholders’ agreement and why is it essential for limited companies?

A limited company with directors and/or shareholders should establish a shareholders' agreement, even if it is a basic one. Essentially, this acts as a will for the business, outlining what has been agreed regarding the distribution of shares in the event of death, illness or similar circumstances. This ensures the protection of both the business and the individuals involved, providing clarity and security for the future.

How can shareholders' protection policies benefit businesses in challenging circumstances?

Shareholders' protection policies are designed to provide financial security and stability in unfortunate circumstances where a shareholder's involvement in the business changes, such as through death or serious illness. These policies ensure that the business can compensate the individual or their family for their share in the company, maintaining fairness and preventing financial strain on the organisation.

Without such a policy, the business may struggle to buy out the shares, leaving it vulnerable to ownership disputes or operational disruptions. A shareholders' protection policy offers peace of mind, ensuring the funds are available to facilitate a smooth transition of shares while allowing the business to continue progressing confidently.

How does business planning differ for sole traders compared to limited companies?

Business planning for sole traders focuses on personal interests such as income protection, retirement and supporting their family, as the business is not a separate legal entity.

For limited companies, planning addresses broader concerns including governance, succession and shareholder interests, reflecting the involvement of multiple stakeholders.

What are the key considerations for income and life protection for sole traders?

A key consideration when planning is ensuring life cover is in place at sufficient levels, as their family may face the loss of a significant annual income. Equally important is income protection, which provides a level of income during long-term absence or illness.

Why is tax efficiency important for both limited companies and sole traders?

For both limited companies and sole traders, tax efficiency becomes crucial when the business is performing well and generating healthy profits.

Effective tax planning helps maximise income, manage dividends, control tax brackets and optimise costs or expenses. It also opens opportunities for further tax mitigation and efficient ways to extract profits from the business, ensuring long-term financial stability and growth.

How can pensions play a role in tax mitigation and retirement planning?

Pensions are a cost-effective way to plan for retirement while reducing taxable income. Forward planning with pensions allows business owners to extract funds from a profitable business efficiently. Given the limitations in how additional funds can be withdrawn from a business, pensions are a crucial consideration for both tax mitigation and long-term financial security.

What options are available for succession planning or selling a business?

Not every business is suited to succession planning or a profitable sale. Succession planning often involves a family member or an individual within the business taking over, allowing the brand and services to continue.

Alternatively, the same individual might facilitate a sale of the business.

If a full sale isn’t possible, the business owner could retain a vested interest, providing them with ongoing income while maintaining influence and contributing their knowledge and experience. This approach ensures continuity and leverages the value built over years in the industry.

How does Business Asset Disposal Relief impact the taxation of business sales?

Business Asset Disposal Relief (formerly Entrepreneurs' Relief) provides significant tax benefits for individuals selling a saleable business. It allows the first £1 million of qualifying business sale proceeds to be taxed at a reduced rate of 10%, offering substantial savings. However, any amount exceeding £1 million is taxed at the standard rate of 20%.

This relief can make a business sale an attractive option for funding retirement or achieving long-term financial goals. Proper planning is essential to maximise this benefit and ensure the valuation and tax implications align with the seller’s objectives.

What are the limitations of business sale options for sole traders and partnerships?

Sole traders and partnerships typically lack the straightforward business sale options available to limited companies. Since the business is often closely tied to the individual, selling it as a distinct entity can be challenging. This makes it crucial to adopt a different approach to business planning, focusing on personal financial security and provisions for their families in later life.

Why is a tailored business plan crucial for achieving personal and business goals?

Every individual has unique goals, objectives, aspirations and financial needs, often influenced by their life stage and circumstances. A tailored business plan helps align these personal and business priorities by outlining achievable strategies and long-term options.

With a clear end goal in mind, such a plan ensures sustainability, supports informed decision-making and contributes to a fulfilling and financially secure retirement.

How can businesses benefit from the support offered by North Wealth Management through SNIPEF membership?

SNIPEF membership provides businesses with access to North Wealth Management for advice and support on business-related queries, all without obligation or commitment. This resource can help businesses with forward planning, offering peace of mind and guidance to achieve their aims and goals effectively. Or alternatively I can be contacted either at Marc.Millar@sjpp.co.uk or on 07842 628 731 for a no obligation chat.