Happy New Year from me and the cat or the Cat and I, which is better English. Timmy is very focused for 2022. He wants to be nicer to the other cats in the area, wants to eat better, and is planning to do 1k in March. He is not doing dry January though, to stave off imminent death. He had a great Christmas and went heavy on the selection boxes. Hence serious goal setting by him for 2022.
It's funny when you think of it. You are a booze loving, hamburger eating, Netflix watching type of guy on the 31st of December. Then 1 day later you are supposed to be a celery eating, water drinking, and marathon running type of guy. That doesn't make much sense, and neither is it realistic. From what I read and listen to the tone seems to be to not set goals and make resolutions for 2022. The reason behind this is that the last two years have been hard on everyone. They have been hard on you too even if you don't realise it! I don't buy into this way of thinking. Yes, these last two years haven't been easy. But is that a reason not to be ambitious or an excuse not to achieve the thing you want to this year? If there are things you want to achieve in 2022 then why not set goals to achieve them. These could be personal or business goals. If your goals are realistic and achievable then why not write them down and work towards them. I would like to look like Jamie Dornan by May of 2022 is not realistic for me. Nor is it realistic for me by May 2032 come to think of it.
In our final blog of 2021, we looked in the rear-view mirror to see what the year was like for us. In case you missed it see here
This week we are going to look at things to consider for business owners in 2022. These include
- To incorporate or not
- Protect yourself
- Plan for exit
- Set realistic goals
- Mind your team
Business in a Company
Are you a sole trader or in a partnership? If so, is your business very profitable and you don't need all the money that the business generates. That may sound nonsensical, sure of course I need all the money! If your spouse has a good salary, then you may not need large drawings. So, you could be paying very high tax bills and that money could be better used elsewhere. Major benefits of having a company include
- Paying tax at 12.5% instead of 50%
- Pension planning - company pays and not you
- Limited liability - protects your assets
- Tax return season isn't as painful as you pay your taxes on your salary during the year
- Build up funds in the company for tax efficient extraction later
- More efficient structure for expansion and debt repayment
While there are so many advantages there are disadvantages too so beware of those. For more information on this click here
This means preparing for the worst and it doesn't have to be crazy expensive. If you get hit by a bus what way does that leave your spouse and children financially? Or if you are unable to work because of illness. If you have a mortgage, you will have mortgage protection to clear that off. But will that be enough? In most cases, the answer is no. What happens to your business? Would your spouse be able to run the business? Having enough Life cover and business or Income protection in place is a wise investment. To ensure that your income doesn't dry up look at Income Protection. If you are in a company and you are the main driver of that, then look at executive income protection. Keyman cover is also wise if your company has large loans, or you need a lump sum to hire a replacement for you. If you are in a company the company can pay the cost. Be careful on the taxes as there can be BIK and corporation tax implications. For more information see here for a link to the Zurich protection website
Don't underestimate the value of a personal or company pension when it comes to life cover. Your pension is a form of life cover in that it has a value that can go to your spouse on your death. I see it as a long-term savings plan. Anyone that reads these blogs regularly will know that I am a big fan. You are creating an asset for the future that has a value now. The plan is that you get to use it in the future by drawing down 25% of the value tax-free, with the balance going into an ARF. The ARF will give you a pension income. For more information on Benny Watt’s pension journey see here
Plan for Exit
I know, I know I am always harping on about this! The reason for that is that it's bloody important. You may not ever want to sell it, but you will have to stop working at some stage and you want to plan for that. If you plan well and get a large tax-free payment, then you can enjoy a more comfortable retirement. And if the payment is not tax free then a 10% Capital Gains Tax payment on the first €1 million is also good. So, what can you do to plan ahead? This will depend very much on your circumstances, but some ideas would include
- If selling or exiting a business before 55, can you get Entrepreneurs Relief?
- If selling after 55 will Retirement Relief be an option for you? See here
- Prepare to maximise the reliefs if spouses are working in the business
- Is your shareholding right? If not, then look at fixing this before you hit 55
- Are you 64 or 65 now? If so, can you avail of the higher Retirement relief amounts? The tax-free amount reduces from €750,000 to €500,000 when you hit 66.
- Pension Planning should be part of your exit and excess cash can go towards topping up
- Beware if you have investment assets in your company as they can limit the CGT reliefs
- Look at the value of the company. Need help with this? I know a company valuation wizard.
Set Realistic Goals
No business in the world that can't improve. Sorry Jeff Bezos if you are reading this! If you want to increase your turnover from €10 million to €20 million is that possible? Is it realistic to do that? Do you have the team in place to do that work? Looking ahead now what is the amount of work you have in place and what value does that have? What value of new business do you need to win to grow and reach a realistic target? And have you a plan in place to win that new work? There are so many areas of our businesses that we can focus on to improve efficiency. Some of these can be easy wins. Possible areas that you can make improvements in are
- Pricing - is your pricing right and margin protected? If it costs you more to produce, then you either pass on that cost or reduce your profits
- Marketing. How do people find you or your product? Do you have a strong online presence with a digital marketing plan in place? What types of clients are you trying to attract and is your marketing aimed at them?
- Debtors and Invoicing. Do you send out invoices on time? What are your credit terms, and can they be reduced? What about payments? Can you set clients up to pay you by DD? They will have to pay you anyway so why not get paid earlier. Remember cash in the bank is king and you are not the banker for your customers.
- Sales. Have you a process in place? If you have brilliant marketing but they are not converting to new clients, can you improve?
- Finance Function. Is this working in your business? Are you getting the information you need when you need it? Are you doing Vat returns and payroll and hating it when your time is more useful in other areas of the business? Consider outsourcing the finance function.
We are all striving to improve our businesses, but Rome wasn't built in a day. Focus on one thing and get that sorted. Then you can move on to the next one and you will see great improvements over time.
Mind your Team
This is your greatest asset so mind them as if they were your children. That doesn't mean making them do antigen tests twice daily, but you know what I mean! These are the people that do the work, that talk about the business, and interact with your customers. If your team is happy at work, they will work well and enjoy what they are doing. You want a happy team to drive your business forward. After all, your income and your jobs depend on this. From my limited knowledge in this space, most employees are not motivated by money. This is on the basis that their pay is the going rate for the work they do. What does motivate people are many different things and what springs to my mind with the small team we have are
- Continuous learning. Learning new ways to do things and improving their knowledge. This arms them with the latest information to help their customers
- Flexibility. This can be around kids, working hours, medical appointments, and holidays etc.
- Interesting work. Work needs to get done and it is not always 007 type work that makes you feel like a secret agent. A lot of work can be boring. But what's boring to you can be very exciting for someone else. I know Aedin here loves when all her Bank recs balance. That's why she loves doing bookkeeping and accounts. Find out what people are good at, place them in roles that suit them, and watch them excel.
The purpose of the blog is not to preach to you that you should be doing these things or else. Everyone’s business and circumstances are different. The blog aims to get you thinking about your business. Do you know any business owner that sets aside some thinking time? If so, that is a wise man or woman. With thinking comes ideas and if ideas remain ideas, then that time is a waste. But if ideas lead to actions, then you are making progress.
Did any of the above topics strike a chord with you? If so, pick up the phone to Deirdre on 051396703. Or drop us a note here and tell us a bit about you and your business.