Looking after your employees is not a new concept but an excellent way to create a healthy company culture, a motivated workforce, and a thriving business. Alongside economic uncertainty, costs of doing business and achieving your long-term business goals, it has become even more important for owners to value, reward, and respect employees nearing retirement age.
While there is a duty for SME businesses to do this, they have equally been hit hard and impacted by the Government announcements including an increase in the minimum wage and National Insurance changes. Yet, having a succession plan that works for everyone means rewarding loyal and dedicated staff with the stability they deserve with a strategic and future-focused mindset that accounts for your personal wealth and your company’s health.
As a business owner, your personal finances and company’s financial health are interconnected. Creating a comprehensive long-term financial strategy requires careful planning that accounts for both dimensions of your wealth.
Ideally, begin by ensuring your business has a solid financial core, before extracting wealth for personal use, by maintaining adequate working capital reserves to weather unexpected challenges. You’ll want to establish an emergency fund for both your business and personal finances, and create clear boundaries between personal and business finances with separate accounts and record-keeping.
From the get-go, it’s important that you have robust financial reporting systems in place that provide you with clear visibility into your business’s financial health. Regularly inspect management accounts and conduct financial reviews. This practice enables you to make informed and strategic decisions regarding the timing and amount of funds to extract from the business and contribute to employee pension schemes. These decisions should be possible without hindering your growth prospects, regardless of your current size or scaling stage.
Building on this solid financial foundation, evaluate pension contributions throughout your company to check that you have established a tax-efficient way to build personal wealth and protect your business interests. Employer contributions are a deductible business expense and don’t attract National Insurance contributions. This approach can significantly reduce your overall tax burden while building substantial retirement assets. Consider maximising your annual allowance and perhaps carry-forward provisions for unused allowances from previous years.
On a personal level, being prepared for retirement is undoubtedly essential if you want to maintain the same quality of life after you finish working, whether you decide to close or pass on your company. When it comes to pensions, some people aren’t doing the basics to make that happen and, in a recent survey, 21% of British people said that they didn’t have any savings aside from the State Pension.
In other reports, less than a third of workers in groups aged 45+ are confident that they have saved enough money for their retirement. As a business owner, you have a legal duty to provide a workplace pension scheme that eligible employees can automatically be enrolled into. Sharing the burden of supporting your employee’s pension plans, whether paying into packages, or being open and sharing advice wherever possible, is important to providing guidance and reassurance.
While you can’t force employees to opt out, you can encourage them to participate in the scheme by providing information and offering financial advice or resources. Do be aware that not everyone will be thrilled about the idea of auto-enrolment in your pension scheme.
Your business is a significant asset for your retirement planning yet how you pay yourself affects both personal income and business tax efficiency. A thoughtful salary strategy is one that balances immediate income needs with tax optimisation and long-term wealth building. Review this strategy in relation to the latest tax regulations and as your business circumstances change. A regular review ensures you’re maximising current opportunities, while remaining compliant with changing regulations.
Consider other tax-efficient benefits your business can provide, such as electric company cars with minimal benefit-in-kind tax implications, token gifts to employees sometimes referred to as trivial benefits (currently up to £50 per instance), and health insurance. These can enhance your overall remuneration package while managing tax liabilities.
Plan the timing of income extraction to maximise tax efficiency. Sometimes spreading dividend payments across tax years or accelerating/delaying certain transactions can result in significant tax savings, by utilising annual allowances effectively.
Securing both your financial legacy and the company’s continued success hinges on developing a clear succession plan that addresses the future of your business beyond your active involvement. A well-designed succession strategy secures both your financial legacy and the company’s continued success. Determining who will take over business operations when you step aside, might involve family members, current employees, or external management.
However, whatever succession approach you opt for requires different preparation and timeframes. For family succession, consider creating a family constitution that outlines values, roles, and decision-making processes. For management buyouts, establish clear valuation methodologies and financing options. Or, if you choose an external sale, focus on maximising business value by showcasing your strong financial performance and the reduced reliance on you as the owner.
Implement tax-efficient methods of transferring business assets to minimise inheritance tax liabilities. Business Property Relief offers significant inheritance tax benefits for qualifying businesses. Consider establishing trusts or gifting shares progressively during your lifetime to reduce the eventual tax burden. The timing and structure of these transfers are critical, as they must balance tax efficiency with your need for ongoing income and control.
Create a comprehensive business succession plan with a bespoke roadmap for your business that includes contingency plans for unexpected events such as illness or disability, as well as your preferred timeline for a planned transition. Review and update this regularly, particularly as you approach your target age.
By implementing a coordinated approach to both your financial and business retirement plans, you can build personal wealth while ensuring your company remains healthy and resilient for the long term. As a company owner, having a holistic and long-term view of your accounts and pension objectives will enable you to look after your employees, grow as a business in the short and longer term, and attract/retain trusted personnel.