Essential financial habits for business owners

Financial habits seem simple enough, but when it comes to wealth management for high net worth individuals and business owners, the conversation can get very complicated, very quickly. But it doesn’t need to. Staying educated about the small changes you can make and habits to adopt will put you in good stead for a smoother management process. So, what financial habits should you be looking at?

The bread and butter of financial habits

When it comes to wealth management and financial planning at all levels, cashflow forecasting is key.

At its most basic level, cashflow forecasting is a visual log of expected inflows and outflows over a specified period.

When you take it a little further, however, a cashflow is about anticipating and preparing for the things that could happen in different circumstances over a timeframe. For instance, if you finally started that business, what would your financial situation look like, and what can you do to support yourself? When can you afford to retire? Should you be downsizing?

It’s a way for you to visualise your financial future. And, right now, that’s more important than ever for high net worth individuals and business owners.

A good financial planner will create a forecast for you. A great financial planner will take time to truly understand your circumstances, get to grips with your objectives, learn your history, and consider your anxieties.

Getting the right insurance

The more assets you have, the more insurance you may need to maintain to protect them.

You may consider the following insurance options:

1. High Value Home Insurance – a policy which provides a higher level of cover than your more standard home insurance. This is particularly relevant if you own a non-conventional home.
2. Income Protection – a policy that can help with the month by month management of funds.
3. Term Life Insurance – a policy which helps to protect a repayment mortgage if you were to pass away while still covered by the policy.
4. Professional Indemnity Insurance – a policy which could cover legal fees and compensation for claims made against you.

The above list is not exhaustive, but it’s a start.

Its always best to speak with a chartered financial planner

Separating the business from the personal

Considering your business and personal finances under one umbrella is an easy trap to fall into – but they should be separate everywhere.

From your accounts and tax to the way you think of your money, there are many consequences of mixing personal and business finances:

• Losing legitimate tax deductions: as a business owner, you will be entitled to several tax deductions which individuals are not. If your business and personal records are mixed, it becomes increasingly challenging to pinpoint the individual deductions which suit you and your context most. By separating your records, you make the process more efficient. And, let’s be honest, when you’re reviewing pages on pages of records, efficiency is a welcome attribute.
• Personal Liability: one of the biggest arguments for separating your finances is ensuring your personal assets are secure. The long term goal for business owners is often to remove personal guarantees from loans and lines of credit. To do this, you need to establish a strong business credit score over time.
• Difficult accounting: digging through your accounts can be a timely process. With your personal records mixed in, your accountant may find it even more time consuming. In addition to this, throughout the accounting process, separate accounts will make it easier to access your cashflow and revenue information.

But how do you keep it separate?

There are many ways to ensure you keep the business and personal separate. Below are just a few:

• Keep detailed records: document everything and keep a detailed and accurate record. For instance, if you have a vehicle which you use for both your business and personal life, keep a record of the mileage you rack up when used for business. This will ensure you keep options open for planning.
• Have separate accounts: further to the above point, keeping separate accounts for business and personal use aids your record keeping, but also just makes things easier day to day.
• Consider the type of company: if you choose to run your business as a limited company, your business and personal finances are separate since they are separate legal entities. This may make things more efficient.

Ultimately, the list of positive habits for high net worth individuals is practically endless. The above are just a few habits to get you started.

If you’d like support on your journey, get in touch at hello@firstwealth.co.uk or 020 7467 2700.

This document is marketing material for a retail audience and does not constitute advice or recommendations. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested.