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7 Financial Risks You Face as a Business Owner And How to Overcome Them

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Jul 26

A risk is the decision to take a course of action that has an uncertain outcome.

Taking risks can make us uncomfortable because the difference between success and failure can be great, especially when the stakes are high.

Starting your own business is such an endeavour because the rewards of success can be incredible while the cost of failure can be devastating.

As such, it’s not uncommon for business owners to put the financial interests of their business entirely before their own.

Now, while this is well intentioned, it can be very costly because there is no guarantee that your business will be there in the future to give you support when you need it.

Therefore, putting everything on the line can be dangerous because it could expose you to a number of personal risks such as;

– Not having enough money to support the lifestyle you want in retirement
– Not being able to realise a financial reward because you can’t sell the business
– The financial loss to your family if you can’t work because of an illness or injury
– The impact on your retirement plans if you can’t work because of an illness or injury
– The ongoing loss of income that your family would experience if you die
– The financial risk to the business on the death of a shareholder
– The potential risk to your shareholding, and your family’s interests in it, if you die.

These risks are all very real but they are also quite unique in that;

  • Their potential impact can be quantified.
  • Solutions exist to mitigate them.
  • The provision of solutions can be fully funded through your company.

What this means is that, with a few simple changes, your limited company be transformed from a mere trading entity into an all-encompassing financial bodyguard in the following 7 ways;

 

# 1: It Can Gift You A Pension Fund Up To €2,000,000.

In simple terms, a directors pension facilitates the transfer of cash from your company’s bank account into your own long term savings account.

In other words, you don’t have to pay anything towards it at all.

Not one cent.

Now, while €2,000,000 is the maximum allowed, your unique figure is based on relevant material facts such as the value of any existing pensions you have, your age, your gender, your desired retirement age, current salary and years of service.

All these factors determine the maximum pension fund size your company can give you.

You can find your unique number, and what it would take to get it, right here in 30 seconds.

As a director, you have unique pension entitlements but they may not be around for much longer with the proposals for standardisation on the way and the recent lifetime limits that were imposed in the U.K.

As such, you should make the most of this opportunity while you still can because there’s no guarantee that your business will sell in the future (or sell for the amount you need to finance a 30 year retirement).

You can read more in our article about Director Pensions here

# 2. It Can Reward You With A One Time, Tax Free Cash Payment Up To €200,000.

Yes, you read that right.

If you think you’ve left it too late to start a pension then this is the next best thing.

This option allows you to take up to 150% of your future final salary as a tax free lump sum on its own.

As a simple example, if you’re earning €40,000 today, and on track to earn €100,000 at retirement, then you could see to it that the company gives you a €150,000 golden handshake after the age of 60.

Think of it as your business demonstrating its gratitude to you for a job well done.

No Income Tax,

No Capital Gains,

No Pension Purchase,

No Hidden Clauses,

No Hassle.

No Brainier…!

Again, you can find your unique number here in 30 seconds (It’s the ‘tax free cash’ option you‘re looking for)

…or you can read about this in more detail here

 

# 3. It Can Insure Up To 75% Of Your Income If You Can’t Work Because Of An Illness Or Injury.

Work-life balance isn’t an overly pressing concern for the majority of business owners since most would prefer working to doing almost anything else.

However, the choice to work isn’t always yours to make since life can give you an almighty sucker punch when you least expect it.

And, if the statistics are to be believed, then you’re 4 times more likely to get a serious illness than you are to die before the age of 65 in Ireland.

Naturally enough, most people would prefer not to ponder these anxiety inducing scenarios especially if they have others who depend on the income they earn.

However, if an illness or injury should befall you, your limited company can swoop in to save the day.

That’s because it can literally outsource the continuation of your salary payments to an insurance company.

Having this benefit in place means that;

A) You don’t have to make dramatic changes to your lifestyle or live off your savings should you find yourself the victim of an accident or an illness.

B) You can take the appropriate amount of time to properly recover since you’re not under any pressure to return to work to earn an income.

C) The long term survival of the business, your most valuable asset, is protected since it can now use your salary to hire an interim replacement to run it.

 

# 4. It Can Pay Up To €63,500 Of Your Annual Pension Contributions If You Can’t Work Because Of An Illness Or Injury.

Hard to believe, isn’t it?

So, not only can your company continue to pay you if you’re sick, but it can also ensure that your retirement plans stay on track by having an insurance company pay your pension contributions for you.

There are many things that can put a temporary halt on your retirement plan.

However, anything beyond temporary can be deadly so your plan needs to be robust and tough.

Having a pension protection benefit in place means you can practically negate your plans weakest link if your health happens to be it.

 

# 5. It Can Pay Your Family A Cash Lump Sum Of Up To 4X Your Salary On Death.

If you die, your limited company can pay your family up to 4 times your current salary as a tax free lump sum.

Not only that, it can pay an additional 4 times your current salary as an annuitised income for your dependants.

For example, if you were earning €100,000 in the year you died, then your spouse could receive up to €400,000 as a tax free lump sum along with an additional income of €20,000 (€400,000 x 5%) a year.

Note: The prevailing annuity rate available and your spouses age at the time of your death would affect the income level.

 

# 6. It Can Insure Your Business Partners Shareholding So You Can Keep Ownership Of The Business If They Die.

The death of a business partner can dramatically change the future prospects of a business.

Aside from the emotional and strategic loss to you and the business you also need to consider that it won’t be long before their family come knocking at the door looking to claim what’s rightfully theirs.

…their equity in the business.

This is not a time to declare that you don’t have the cash to buy them out or to start requesting time to get some together.

No, they will want nothing less than a cheque for the full value of their share.

If this isn’t forthcoming then this emotionally distraught individual, or one of their children, may just insist on becoming your new business partner instead.

Eh, no thanks.

Complicated working relationships are best avoided.

With a business partner insurance contract, the cash value of their shareholding can be released quickly so everybody can move on.

No stress, no drama and everyone gets to go home.

 

# 7 – It Can Insure Your Shareholding So That Your Family’s Interests Are Protected If You die.

If you are the one to go then your personal interests will need to be settled.

Naturally enough, and notwithstanding your partners desire to do right by your family, the surviving directors will want the ability to move on quickly.

That’s because they will also want a clean break because life goes on and there’s a business to be run.

But a clean break, like in the previous example, will cost them the full value of your shareholding.

And your shareholding, let’s not forget, may well represent your family’s financial security blanket for the future so this is of critical importance to them.

However, in the absence of accessible cash, the remaining partners would either have to take out personal loans, or make other financially strenuous arrangements with the business, in order to buy out your share.

These things can be very difficult to arrange at short notice and can delay things significantly.

Even worse is that, if it drags on indefinitely, then it’s your husband or wife who faces the prospect of ongoing disputes, disagreements over valuations and the prospect of having to fork out for costly legal advice and/or litigation.

…just for claiming what’s rightfully theirs.

Your family doesn’t need things being difficult at a time like this so do them, yourself and your business partners a big favour and get it sorted today.

Summary

That’s it.

Even a very small business can a very valuable asset if it’s set up to be one. An asset that looks after you, your family and itself once the right pieces are in place.

Succeeding in business is difficult so the smartest business owners embed their personal interests into the centre of their operations instead of being on the periphery.

So, since you’ve worked hard to build yours, you owe it to yourself to ensure that it can look after you when you need it to.

I can help you with any of the above so get in touch today if you want a confidential, no obligation chat about your situation.

You can get me at 01 4423929 or kevin@thepensionstore.ie

Regards,

Kevin

2019 Business All-Star (Pensions and Retirement Planning)

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