It’s been a tough year for thousands of businesses across the UK. Whether you had to furlough staff, adapt your working practices, or close your premises entirely, dealing with the fallout of the pandemic will be one of the toughest challenges you’ll have faced as a business owner.
Coronavirus has also been a wake-up call for many business owners. And, as with many of life’s challenges, there are many financial lessons business owners can learn from the events of the last 12 months. Here are five key takeaways from the past year.
1. You need a safety net
Disruptions to your personal or business income can have wide-ranging implications.
From a business perspective, reduced income from sales might have seen you furlough staff or even lay off some workers. Personally, you may have seen your income fall – even if you were eligible for government support.
What the last year has shown is that it’s vital to have a safety net in place. For a business, this is cash in the bank that you can use to get you through periods of short-term hardship. Personally, this is an emergency fund that you can dip into when you need it.
Most experts suggest holding somewhere between three- and six-months’ living expenses in an easy access account. You may need more or less, depending on your business and personal situation.
A financial planner can help you to establish how much is “enough” for your circumstances.
2. You need less “stuff”
A life-changing event such as the pandemic can lead you to rethink your priorities and focus on what really matters to you.
Does your business need expensive premises or offices? Do you really need all the latest tech and gadgets? Do you need to drive a new car every two years?
At home, you may have also re-evaluated what’s important to you. During the first lockdown, millions of people decided to put their house in order, with charities reporting a surge in donations once their shops reopened in June 2020.
Discarding costly things and habits that no longer serve you can be transformative. Whether that’s going paperless in the office, or simply cutting out unnecessary spending, you can create a leaner business that is well-placed to deliver profits as the economy recovers.
3. You need to manage risk
The biggest personal finance lesson from 2020 is the importance of understanding and managing risk. Simply put, many people don’t insure enough against the risks they face.
You may have insurance in place to protect your premises or stock, but:
- Could your business continue if you or one of your key staff were to be off for an extended period?
- What would happen to your business if you were to die?
- Do you have a robust employee benefit package in place to support your staff if they were ill?
These are difficult questions to ask, but the pandemic is a good reminder that it is better to be safe than sorry.
In addition, do you and your family have the right personal protection in place? Have you reviewed your life insurance recently? And do you have the peace of mind of a lump sum if you, your partner, or your child were to be diagnosed with a serious illness?
4. Your plans need to be flexible
Over the last year you and your business are likely to have adapted. Many companies have reinvented themselves, from accelerating the move online to finding new market opportunities or creating new products to address changing needs.
The pandemic has forced many business owners to step out of their comfort zone, to question their existing methods, and to employ creative solutions to the challenges posed by the virus.
What it also means is that your personal plans may have changed.
The most recent Financial Lives study by the Financial Conduct Authority (FCA) revealed that three in five (58%) who retired in the first six months of the coronavirus pandemic had not planned to retire.
Nearly a quarter (23%) did so because they lost their job, while a fifth retired because lockdown made them realise that they wanted a change (18%).
Conversely, many business owners have decided to postpone their retirement. You may have decided that you’re going to continue working for a few more years to build back the value in your business, or perhaps to replace savings that you have depleted over the last year.
A good financial plan ensures you retain the flexibility to make changes as your circumstances change.
For example, if you’re now planning to work for a couple more years, you have a great opportunity to make another couple of years’ worth of pension contributions. You might also have reduced the amount of time your pension fund will have to last when you start to draw it.
5. Keeping control of your finances is key
Decisions about your business and your lifestyle will often come down to one question: “Can I afford to do this?”
Right now, you might be thinking about retiring early, and be worried your pension fund won’t last your whole retirement. You might have seen the impact of coronavirus and want to ensure you have the right protection in place. Or your business might be thriving, and you’ve decided to keep on working to make the most of the current opportunities.
Whatever situation you find yourself in, keeping control of your finances – both business and personal – is critical.
That’s where working with a financial planner can help. We can work with you to ensure your business and personal finances remain separate, and that you have a robust, flexible plan in place for both.
We can help you to answer some of the big questions regarding the sale of your business or your retirement.
And we can make sure you have the right strategy in place to deal with issues concerning tax, estate planning, and passing wealth to the next generation.
Get in touch
If you want to do things differently once the pandemic is over, or you want to find out how good financial planning can benefit you, please get in touch. Email firstname.lastname@example.org or call us on 01454 416 653.