How to protect your business and personal finances equally, and why it matters

If you are a business owner, you may understand the feeling of “double hatting” when it comes to your finances.

This phrase describes having full responsibility over two major roles in life. For you, this might be running your business and supporting your family financially.

Those who have been double hatting for some time will know that these roles can be challenging to keep up simultaneously. Managing your business’s finances alongside your personal wealth could be a time-consuming task, particularly if you take it on alone, and this might lead to important money matters being placed on the back burner.

One such money matter is financial protection. Amid your busy day-to-day life, your protection on both sides could have fallen out of date, or simply not be sufficient if a financially damaging event occurred.

Keep reading to discover how to protect your personal and business wealth equally.

2 tips for ensuring your personal finances are properly protected for the long term

First, let’s talk about protecting your personal wealth.

1. Ensure your financial protection is up to date

Financial protection is an essential foundation of all solid financial plans. Whilst your protection needs may be unique to you, a typical package of cover might include:

• Life insurance
• Critical illness cover
• Income protection insurance.

For business owners, maintaining your personal cover and updating it when necessary could be even more essential. If you pay yourself a salary, this could be covered by critical illness or income protection insurance if you were to be diagnosed with a long-term illness, for example.

Having the appropriate personal protection in place could help to protect your company from losing funds to long-term sick pay, and prevent you from depleting your savings whilst you are off work.

Similarly, life insurance could enable your family to maintain their current lifestyle if you were to pass away, rather than relying on income from the business in a stressful time.

2. Maintain a healthy pot of personal savings and investments for the future

Another often-overlooked way to protect your personal wealth is to simply keep saving and investing.

Indeed, many business owners rely on a future sale of their company to fund their retirement – but this strategy could leave your family vulnerable later in life. If your business does not sell as you hoped, or you decide to keep it going longer than anticipated, your personal savings might not be enough to fund your life in the meantime.

With your future viability to protect, it could help for business owners to:

• Pay yourself a salary
• Make tax-efficient pension contributions
• Maintain an emergency cash fund to cover short-term payments
• Discuss your long-term financial plan with a professional.

We’ve recently published further insights on how self-employed individuals could reduce their stress around tax and future savings, which you can find on our blog page.

2 ways to protect your business from unexpected financial hits

Now, we turn to protecting your business.

1. Identify key people and put measures in place to protect them

One crucial way to protect your business is to shield its top people from harm when you can.

A “key person” in your business is anyone in a senior position of power, and whose loss would cause a significant disruption to the running of the business. This might be you, other family members if they work for you, or a business partner.

As such, it is essential to financially protect the key people in your business. This could look like:

• Obtaining and updating key person insurance, which could offer financial support to your business if a key person died or became very ill
• Offering personal protection as a workplace benefit, such as a “death in service” life insurance benefit, or critical illness cover
• Including a package of health and wellness perks to key employees, to help reduce cases of burnout and enable them to bring their best selves to work.

Investing in your key people, and helping them to invest in themselves, could protect your business against unexpected life events that could result in a financial hit.

2. Review your long-term succession plan regularly

As the Scottish poet Robert Burns once said, “The best laid plans of mice and men often go awry.”

We’ve written before about the importance of having a long-term succession plan as a business owner.

Yet once you have put a plan in place for your own retirement, whether this involves selling the business, choosing your replacement, or winding it up entirely, make sure to continually review these plans. After all, events that affect your life or your business could prompt you to alter the provisions you have already made.

An annual review of your business’s long-term strategy could help you to:

• Keep important people protected
• Adapt to new circumstances, such as the cost of living crisis or Covid-19
• Assess the affordability of your plans based on the latest data
• Maintain the peace of mind that your business is on the right track.

Putting these regular reviews into your business’ calendar could help your business to handle any shocks down the line.

Get in touch to work with a Financial Planner who specialises in supporting business owners

It is all too easy for business owners to let their personal finances fall by the wayside. Luckily, that’s where a Financial Planner comes in – we’re here to help ensure your wealth is planned out, managed, and grown in line with your long-term goals.

Email us at enquiries@pen-life.co.uk, or call 01904 661140.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

Note that life insurance plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.

Cover is subject to terms and conditions and may have exclusions. Definitions of illnesses vary from product provider and will be explained within the policy documentation.

The Financial Conduct Authority does not regulate tax planning.