At Silver and Wise - we help to change the lives of aspiring mature age individuals through business ownership.
We asked an experienced financial adviser - Chris Brown, for some financial tips for those considering starting self-employment or a small business.
Chris is a founder of Chapters Retirement Partners- who are financial advice experts and specialise in helping mature Australians over 55 to and through retirement, and to ‘Finish Strong’.
Tip 1: Consider broader financial goals- It is important to understand how your new venture can fit with your broader financial and retirement goals. Put yourself ahead in the future 10 and 20 years ahead and think about the financial position you would like to be in and what you would like to have achieved or experienced along the way. By determining this future point- you can then ideally find a venture that will align and accelerate the achievement of your broader financial goals.
Tip 2: Get the structure right- It is best practice to also seek taxation and legal advice from professionals such as accountants and lawyers. This is to ensure you set up the best business ownership structure for your new venture, with consideration to important aspects such as asset protection, taxation (of ongoing revenue and of potential future business sale proceeds) and estate planning. You do not want to jeopardise your other financial assets with your new venture, so you need to seek professional advice at the start, while still ensuring you aren’t creating an overly complex arrangement for your unique situation.
Tip 3: Have a cash buffer/ reserves – To start a new venture you will need some initial cash or working capital and the amount required will vary greatly depending on the nature of the operation. But its important for your overall household finances to ensure you also have a personal cash buffer or reserves. This will ensure you have funds available for unexpected personal expenses such as trips to the mechanic or vet- while you are building your new operation. Ideally these funds should be kept separately from other business accounts and business spending.
Tip 4: Parachute plan- This means having a safe reserve system in place to manage risks to you and your business- ie insurance. There are various general and business insurance covers that may be legally required or others that are worth considering- including workers compensation, public liability, professional indemnity, and business interruption insurances, as well as those insuring physical assets such as vehicles, property, and equipment. An insurance broker is ideally placed to provide advice on these types of insurance covers- and the National Insurance Brokers Association (BIBA) has a site to find an insurance broker- https://www.needabroker.com.au/
Consideration should also be given to the risk of death, disablement or loss of income (which can be covered through a class of insurances generally referred to as Life Insurances). A licensed financial adviser can provide advice on these types of covers and can help to determine which covers you require, how much cover you need, and the possible impact of your new venture on any existing life or income protection policies you might hold.
Tip 5: Banking- It is beneficial to open up a new transactional bank account for the venture for income/ expenses and separate savings accounts for other purposes- ie parking spare funds or funds for tax/ super contributions. This could be with your existing bank so its easy to track on one login or you may prefer the separation of having the business accounts held with another bank. The accounts should be opened in the correct business structure name if you have been advised to run your new venture through a new entity such as a company or trust.
Tip 6: Consider superannuation contributions- In our experience- one of the only downsides of self-employment is that (depending on your business structure) you may not be obliged to be contributing to a super fund along the way for your later retirement. While this could mean more cashflow initially, it also means we do see mature Australians with little or no superannuation savings if they have spent large amounts of time in self-employment. The carrot that the Australian Government provides is that self-employed persons can claim tax deductions for their superannuation contributions (up to specified annual limits)- so they can tax effectively invest for their future. Superannuation contributions made in regular contribution patterns benefit from compounding returns over time and are also generally protected from creditors. Depending on the super fund you could set up a regular contribution direct debit say once per month from your business account and/or make ad hoc lump-sum contributions to super at different times throughout the financial year. The Australian Taxation Office provides current super fund limits and rules on their website: https://www.ato.gov.au/individuals/super/
Tip 7: Get Advice- A financial adviser can help you set financial goals so you feel confident that your future plans are achievable. If you’re not on track to achieving your goals, an adviser can help you put the right strategies in place, or set more realistic goals. They can help tie in your new venture’s income and future asset value into an overall plan, also considering your other assets and other household income and cashflow sources- ie spouse income or retirement product incomes.
If there are things you would like to discuss with a financial adviser, or if you would simply like to know how you are tracking towards your goals and objectives- please visit the Chapters Retirement Partners website on the following link: https://chaptersretire.com.au/. There you can check out valuable knowledge content, download the complimentary Your Retirement Questions Answered paper, and book a private initial call with an experienced financial adviser.
This information is general in nature and has been prepared without considering your objectives, financial situation or needs. You should, before acting on any advice, consider its appropriateness to your circumstances (including your objectives, financial situation and needs). You should also consider the relevant PDS before making any decision about any product.