Know your number

Not until business owners set out a long-term personal financial plan would it be sensible to consider business strategy, advises Xentum Managing Director Adam Carolan.

It is noticeable that many company owners are obsessive about executing their business strategy yet lack a personal finance plan – and it makes no sense for owners not to review their own family positions in line with organisational goals, believes Carolan. “Few people address risk before they look at opportunity,” he commented. “People protect risk in their business but don’t necessarily protect risk in their personal life. So get your ducks in a row and have an idea of what life looks like after you’ve sold your business. It’s great to get the money, but what’s your purpose? Most people are driven by purpose rather than money.”

Carolan says Covid has focused a lot of minds and more people are switching onto the question, ‘what do I want to get out of this?’. “Helping people make the right decisions and get the right number is what drives me,” he said. “Understanding your number is key in the exit process. If you don’t know it, and what it will get you, you will likely experience a lot of fear and worry. People need to understand what kind of life that number will give them on the other side.”

Carolan is set to publish a book based on what he calls the Two Circles principles. Called ‘Two Circles of financial planning – how business owners should run their personal finances’, the book explores the idea of a big circle which attracts all of the focus, time and energy of a business owner. “What they neglect (for good reasons) is the personal circle,” explained Carolan. “I’m trying to get business owners to develop the same mindset for running their business but with their personal finances too.

Few people address risk before they look at opportunity

“What is your balance sheet? What is your five year cashflow? What if the worst case scenario happens? Business owners have these discussions in board meetings about their organisation, but they don’t have meetings about their family finances. The reason people get into business is to give themselves financial freedom, but the business starts to gain control. You may be putting fires out all the time, deal with issues day to day, take body punches – it all saps your energy. So take off your business hat and consider what you are trying to achieve personally. Once we know that, it should go into your business plan.”

Carolan’s primary focus is on the comms, tech and software sector. He works on a fixed fee basis and takes clients through a consultation process, perhaps spending between six and ten hours with a family, assessing their vision prior to creating a plan which is managed month to month by Xentum. “Given how difficult it has been during the last six months I don’t think people are giving business owners the respect they deserve,” he added.

“Consider Entrepreneurs Relief: No one was expecting that to be cut so severely, and looking forwards there are questions about CGT. I’ve spoken to a number of accountants and we are all expecting CGT to go up. The chancellor has made a B-line for businesses and while I expect CGT to be reformed it doesn’t mean there won’t be opportunities at the other side of it. There are always opportunities around planning. My advice would be for anyone going through the exit process to have that March/April deadline in mind. For those not going through the process, I’d be sceptical about rushing things for tax purposes.”

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