Entrepreneurs & financial planning: Run your personal finances with the same rigour as your business

So many entrepreneurs plan for the business – and forget themselves

Matthew Lowe, Financial Adviser, Mattioli Woods

Successful entrepreneurs are brilliant at building businesses and yet, for all their energy, many founders make the same mistake: they plan meticulously for the business and barely at all for themselves.

It’s easy to see why. When you are building a company, every hour and every pound is reinvested. Personal pensions, protection and long-term planning feel like tomorrow’s problem. It’s a pattern advisers see repeatedly. A company grows at pace, and personal financial planning slips down the list – there’s always something more urgent. But the two must move together and, the earlier an owner engages, the better the result.

Safeguards come first

A sound plan needs safeguards from the outset, so that if something goes wrong (particularly on the health side), the foundations do not give way. Whether protecting your family or your business, any kind of life cover can provide you with reassurance and, in many cases, the younger you are when the policy is started, the cheaper the premium could be. For business owners, it’s worth considering a range of covers including:

• Relevant life cover is usually the starting point. It’s structured through the business, so that premiums are a deductible expense – and if the worst happens, the family receives a tax-free lump sum without the payout ever touching the estate.

• Executive income protection ensures that if illness or injury puts the owner out of action, the income keeps flowing. Running it through the company makes it more tax-efficient than personal cover, and it means a period of incapacity does not become a financial crisis on top of a health one.

• Key person cover pays a sum directly to the business when it needs it most: to absorb the shock of losing a critical individual, keep the team intact, and buy the time needed to find the right replacement, rather than the fastest one.

• Shareholder protection is the one most often overlooked, and the one that can cause the most damage if absent. Without it, the death of a shareholder can leave surviving directors in business with people they never chose and leave a grieving family holding shares they cannot easily convert to cash. Done properly, it gives both sides a clean, pre-agreed exit at the moment they are least equipped to negotiate one.

Build wealth outside the business, and start early

Once protection is in place, the focus shifts to accumulation, and time is the most valuable asset in the room.

Pension contributions are usually the first port of call, and the numbers can be significant. The annual allowance is currently £60,000, but owners who haven’t maximised contributions in previous years can carry forward up to three tax years – potentially £240,000 in a single tax year. Coordinated with a client’s accountant around the company year end, a well-timed contribution can meaningfully reduce a tax liability while putting serious money to work for the long term. Access is restricted, of course, and overcommitting is a real risk; the business is what makes everything else possible, and that balance has to be respected.

Where pension allowances have already been used, surplus cash sitting in the business should still be working. Rather than leaving it idle, clients could consider investing directly through the company via a Corporate General Investment Account. Any crystallised gains will be subject to corporation tax, but that is potentially, a far better outcome than capital doing nothing.

For those looking to extract wealth more directly, higher remuneration is one route, though the income tax cost can be steep. This is where more sophisticated structures earn their place. Venture Capital Trusts offer 20% upfront income tax relief and tax-free dividends; Enterprise Investment Schemes go further at 30% relief, with additional inheritance tax benefits for those willing to accept higher risk. Alongside more accessible vehicles such as ISAs, these structures allow owners to build wealth across different time horizons and liquidity profiles – so that when the moment comes, whether planned or not, there are funds available to meet it.

A generational shift in discipline

One noticeable change is the contrast in approach taken by different generations. Many younger entrepreneurs are doing exceptionally well, yet the instinct to build personal wealth outside the business is weaker than it was in older generations. The temptation is to spend or to plough everything back into the company, rather than set money aside in structures they can’t easily touch.

The role of a financial adviser is crucial in this scenario, instilling the discipline to move surplus somewhere productive before it’s absorbed by the next purchase or the next round of reinvestment. The pattern extends to risk too: older clients tend to be more cautious, younger ones more comfortable with it. Given a longer time-horizon to ride out volatility, that appetite is often worth encouraging – though every situation is different.

Think about the exit from day one

The best plans come from knowing where the road leads, so owners are encouraged to think about their exit early, even when it feels far off. Working with a financial adviser can ensure that, when a business passes between generations, the transition, legacy and inheritance tax position are understood in advance and there are no shocks.

World Entrepreneurs’ Day celebrates the people who build businesses. It’s also a timely reminder: the owners of thriving companies apply financial discipline to their businesses, and they should bring the same focus to their own personal finances.