Financial Planning Tips for SMEs and Contractors at Each Life Stage
Business owners and contractors are often considered to be the backbone of the UK economy with SMEs accounting for 99.5% of businesses in every main industry. Combined with 1.4million freelancers or contractors, both SMEs and contractors make up a large portion of the UK’s workforce.
In our experience, many business owners & freelancers are so busy with their own work and looking after their own customers and businesses that they often neglect to attend to their own financial planning needs
NEW TO SELF EMPLOYMENT, RUNNING A BUSINESS OR CONTRACTING?
1. Create a Buffer
Moving from employed to self-employed/freelancing can be daunting, not least as a result of not knowing where you next paycheque or contract is coming from!
So, you should think about having some easy access savings available to tide you through any unexpected work voids or expenses! You can find savings accounts for both businesses and individuals through your bank or indeed online!
2. Insure Yourself
When you were employed, you probably still got paid when you were off sick for a period of time. Now that you are wholly responsible for your own pay, this is an area you should treat seriously.
With the help of an independent financial adviser, you can find a range of income protection options to suit both your budget and your needs. These policies can help replace your income if you are unable to work due to illness or accident. Indeed if you have a Company, with advice, you may even find tax efficient ways that your business could fund this for you.
Finally, if you have dependents, don’t forget to ensure that you have a legitimate will in place and life insurance to negate the financial implications which may affect your loved ones if the worst were to happen. There are numerous policy options available and some will be far better suited to you than others, an independent financial advisor can help you identify the policies which will provide the best cover for your circumstances at the best price.
ESTABLISHED BUSINESS OWNERS/CONTRACTORS
3. Tax Efficient Income
With the help of a good Accountant, make sure that you are maximising your own benefits from your work! Whether you are a Ltd Company Director or contractor, get advice on how best to pay yourself and how to keep more of what you earn!
4. Cash Generation
If you are doing well, you may be building up personal or business cash reserves and wondering what to do with the funds? You may need to set aside funds for tax and other business expenses, but you may still have funds available to put towards meeting your own financial planning goals.
This is where you might start thing about how best to invest the funds within the business or more likely, how you can benefit from the excess funds yourself.
This scenario opens up some great opportunities for tax efficient pension contributions, company investments, personal ISAs or property investment, all of which have different features and benefits that an independent financial advisor (IFA) can help you understand.
5. Keep yourself Mortgageable
It’s probably likely that you still have a mortgage and working as a contractor or self-employed can make getting the best mortgage deal more difficult from time to time. See the below article for some great advice on how to be mortgage ready.
THINKING ABOUT LIFE AFTER WORK?
6. Retirement Planning
Depending on your own objectives, you may or may not wish to exit the business, stop or reduce the amount of work you undertake.
We at Danbro Financial Planning are finding that a lot of people get to a point where they want to understand what their options are. They may wish to carry on working in some capacity or not but aren’t sure whether they can afford to do this.
Some people may have pensions, savings, investments and other assets but really aren’t sure how best to structure things to enable them to work towards their financial freedom. Working with an independent financial adviser can help clarify, quantify and prioritise your goals. From there, a plan can be agreed and a suitable investment strategy put in place.
7. Thinking Of Selling Your Business
Part of your end goals may be a complete or partial exit from your business. Getting your business ready for this can take time. You’ll need to think about when, how much money you need and how you wish to exit. Speaking with an Accountant and an Independent Financial adviser can help make this process easier.
As always everyone’s situation is different and some of the above may or may not work for you. It is always advisable to seek expert help in relation to reducing your tax bill and maximising your saving ability for later on in life. Danbro financial Planning can help in this regard so please do get in touch to discuss your financial planning needs and see where we can help you achieve the retirement you are working towards.
Feel free to book a call with our own Chartered Financial Planner and IFA, Liam Winstanley here, and see how Danbro Financial Planning can help you manage your wealth more efficiently.
Please note: Your capital is at risk. The value of your investment (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
Getting Mortgage Ready
The current UK property market can be considered as somewhat turbulent. With property prices currently falling at their fastest pace since 2009, according to the BBC, many people will be considering getting on the property market for the first-time or possibly looking to move to a better property.
However there is also the recent mortgage interest rise to consider, many lenders increasing the cost of their mortgages as the industry braces for a potential rise in interest rates from the Bank of England.
So on one hand we have cheaper properties, but on the other we have more expensive mortgages. This can be seen as something of a balance and whilst it may deter some people from opting to buy or remortgage it will not stop everyone.
So if you are considering a new mortgage or a remortgage, below are some expert tips to make the process go much smoother and faster.
- Lenders will generally ask for bank statements, this will apply to purchases and remortgages, usually the last 3 months. So to avoid any problems try to stay within overdraft limits, avoid bounced direct debits and watch payment titles from transfers from friends. Avoid pay day loan and gambling bets from known providers.
- If sick pay is showing on a payslip, a lender will want to see another later payslip showing that you have returned to work.
- Keep unsecured commitments to a minimum as this affects affordability, lenders take income to outgoings, this includes, personal loans, credit cards, hire purchase, store and catalogues, student loans, child maintenance, school or nursery fees into account.
- Take care if arranging credit for a daughter/son even if it is showing they pay them back monthly, lenders will only take the commitment and not take into consideration if they are being paid back.
- Minimum time self-employed is one year with some lenders, however the majority take an average of 2 years figures.
- If you are a contractor (Umbrella or Ltd Company), try and avoid large combined gaps of more than 4-6 weeks in between contracts in the 12-24 months before you need to apply if you are hoping or needing to use your “day rate” income, as a lot of lenders will not like this.
- It is always best practice to apply for your credit file, the best website for this is checkmyfile as it shows the 3 major credit companies that lenders use. This is useful if there are any debt issues as we will need to see the dates and the status. Also useful if no credit issues to show outstanding unsecured balances so the application can match up.
- Full disclosure of circumstances, this avoids delays down the line.
Documents to prepare:
- Photo ID like a passport, preferably a scanned copy.
- Address verification, driving licence, recent utility bill again a scanned copy will be required.
- Last 3 months bank statements.
- Last 3 months payslips.
- Existing mortgage statement if applicable.
- Last 2 years full accounts, tax assessments and tax year overviews for self-employed.
- Proof of deposit if purchasing.
- Existing protection policies ie life cover, income protection, critical illness cover to ensure that the arrangements are still applicable.
- If you are looking to review your existing product with a lender you will need to start looking between 6 and 4 months before the rate expires, to allow enough time to remortgage to another lender if necessary.
- For purchases, you ideally need to start the process with us before offering on a property. This is so we can get a good picture of your circumstances before we start looking at lenders and it provides us with the time to narrow down the correct lender and product for us to acquire a decision in principal which estate agents need when viewing. This should be completed approximately 2 weeks before you start looking.
- If you are on a day rate contracting agreement most lenders require a minimum time of 12 months contracting with no gaps longer than 6 weeks, or 2 years in the same industry if previously employed.
- If moving employed roles, some lenders will just use the new contract so you do not need to have been employed for a minimum period with a new employer.
Danbro financial Planning has a wealth of expertise and knowledge in helping business owners, self-employed and freelancers secure the mortgage they need so please do get in touch to see how we can help you secure the best mortgage available to you from the whole of the market.
Liam Winstanley is a Chartered Financial Planner and Independent Financial Advisor. He has worked in financial services for well over two decades, specialising in wealth management and financial planning including things like pensions, investments, retirement planning, financial protection and estate plans.
Liam is the Director of Danbro Financial Planning and is passionate about delivering the very highest standards in service, ethics and professionalism within the financial sector.
Away from Danbro, Liam is an avid long-distance runner and also turns out for his local cricket side, Brinscall CC. He lives in Lancashire with his wife and son.