As a business owner, how hard is your money working for you?
Owning your own business – particularly when you’re first starting out – can make huge demands on your time and energy. As you focus on getting the business off the ground and work hard to build it to sustained profit, it’s easy to miss opportunities that might benefit you financially in the long run.
However, if you’re working long hours to build a future for yourself and your loved ones, at Grosvenor Wealth Management, we believe your money should be working just as hard for you. By helping you to identify how you can use the money in your business in smarter ways, we could ultimately help you to reap the benefits of being a business owner faster and for longer.
Corporate Investment Bonds
One of the main problems that small and start-up businesses face is the need to maintain a core balance in their corporate accounts. With current interest rates at an all-time low, this is illiquid cash that is not generating any income for the business.
One alternative could be to invest any surplus cash in Corporate Investment Bonds. These are bonds issued by companies that are looking for outside investment. If you buy corporate investment bonds, you don’t hold a stake in the company. They are issued for a set period of time – usually a minimum of five years – and when they mature, you should get your investment back. You’ll also get a regular interest payment, usually twice a year. The rates of interest they offer tend to go up when the bank interest rate goes down, so at the moment the interest rates on these bonds are favourable.
However, as with all investments, there’s no guarantee that you’ll make money on a corporate investment bond. This will depend on the company you invest in and any changes to the interest rate. So, choosing the right bonds to invest in is vital. But if you can afford to invest a lump sum in one of these bonds, receiving regular interest payments could add to your bottom line.
If you’re thinking about investing in Corporate Investment Bonds, we would always advise talking to one of our independent financial advisors. We’ll assess your business finances and advise on whether it’s the right move. If you decide to go ahead, we can also help you through the complex rules that can apply to different bonds and we’ll help you choose the right option for your business.
Making the best use of pensions
If you own a limited company, you can pay an employer contribution into a pension plan as an allowable business expense. This means your company will receive tax relief against corporation tax of up to 25%. As an employer, you also don’t need to pay National Insurance on pension contributions, so if you pay directly into a pension, rather than paying yourself the equivalent in salary, you can save 13.8% – the National Insurance rate for the 2021/22 tax year.
Of course, as these are employer pension contributions, there are certain rules that apply to them. They must be solely for business purposes, rather than personal ones, so you may need to make sure all other employees receive the same pension benefits.
Depending on your pension scheme, you may also be able to draw cash from your pension for corporate purposes, such as buying property. These kinds of pension scheme act as a loan-back scheme where you borrow the money from the pension scheme and pay it back.
Obviously, with all these approaches there are risks involved, so we would advise you to take reliable advice on the best option for you, depending on your business circumstances and personal needs.
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