We have appointed you as our financial planner, why are you asking to see copies of our business accounts?
Clients are often surprised at the amount of information we require when they appoint us, especially when we ask how their business is structured. I always explain that we are not management consultants but there are certain key ratios they should look at within their business to make the most of their long-term financial planning.
Most accountants will discuss salary, bonus and dividends with their clients but how often do they take last year’s accounts, figures on turnover and gross margin, compare them with this year’s figures and get you to work out why there have been extra costs when the turnover has risen but the gross margin has reduced? Were those costs essential and how would the bigger profit margin have benefited you as the business owner taking all the risks?
Have you also compared your key ratios with other businesses in your industry to see whether you are above or below the average?
Always have a target in mind and if you can keep costs down, ensure your pricing is average or above average, then your business can make pension contributions to a registered pension scheme. For example, if your business can save £6,000 in costs each year (£500 per month) and you apply that as an extra contribution to your pension fund each year, in 15 years time at 7 per cent a year compound growth, you would have an extra £172,000 in your pension fund.
With a focus like this and an increasingly successful business, the figures could improve substantially to give you a more secure future.
The business can arrange death-in-service cover via a relevant life policy and, to protect your young family, we can examine the cost of the cover you are paying for personally. We will investigate the savings by doing this through the business, where the company pays the contributions and the benefits are written in trust for your nominated beneficiary, which in turn can be a spousal bypass trust and subsequently avoid the money going into your widow’s estate.
The savings on your account by not having to meet these costs through your personal bank account and from taxed income can be used to reduce your mortgage, for extra Isa savings or even for other non-savings matters, because once we have determined what your financial future looks like and how it is to be funded, it might actually be available towards the family holiday each year.
To do our job thoroughly, we should also explore what would happen in the event of death, critical illness or disability to your business.
Are you working off a standard set of memorandum and articles of association or have you considered all the eventualities mentioned? What would need to happen to secure the financial futures of both the business and the family?
If you have an employee who is key to the business, would it be beneficial to create a benefits package for them so that their success is aligned with that of the business?
All these questions arise out of looking through just a few figures in your accounts and working with you on your financial plan, which should be reviewed every year to measure what progress is being made towards your financial independence.
Yvonne Goodwin is managing director of Yvonne Goodwin Wealth Management