Jill Kerby

EVERYONE NEEDS A PERSONAL FINANCIAL PLAN…EVEN THE SMALL BUSINESS OWNER

We take for granted the local businesses that provide us with so many services – the garage owner, the family run supermarket, the post office, dry cleaner, the butcher and chemist. We certainly notice them when they are gone.

There is also too much of a tendency to assume that the owners of small businesses in Ireland are personally doing all right financially, even if the business itself might be struggling in the recession. 

The reality is very different:  last year, five SME’s (with between 50-250 workers) were going out of business every day, a 2-% rise on 2011 figures. Half of all SME loans are impaired according to the Central Bank.

You only have to look around to see the empty shop fronts to see how difficult business is and the SME owner, just like his customers, is struggling with higher taxes, personal pay cuts, a neglected pension fund, a rise in personal debts linked to plant costs and meeting payroll obligations, as well as cancelled life insurance policies, reduced personal household spending and even mortgage arrears.

The difference between the trappings of wealth (an apt description), accumulated with credit and debt, and the genuine thing is going to be revealed as never before when the Insolvency Service opens its doors this summer.

It won’t just be homeowners unable to meet their repayments who will be seeking protection from insolvency; it will also be the local business people and many of them will inevitably find themselves in the new bankruptcy court.

Last Sunday, I was invited to speak about personal finance issues to pharmacists at the Irish Pharmaceutical Conference annual conference.

The timing couldn’t have been better. On the previous Monday I had been at a seminar held by the recently formed Society of Irish Financial Planners (part of a global network of certified financial planners) who are passionate about the need for people to understand that good financial outcomes are part of a process, that involves not just an understanding of their needs and goals, but how to control their fears and emotions too.

These issues, say advisors are just as relevant to people who own businesses and earn higher salaries as they are to the person on the average industrial wage.

‘Sometimes it is just a combination of luck and hard work that results in someone becoming personally wealthy by being a company owner, outside of selling their firm for a profit,” one advisor told me. “Proper planning doesn’t play a big part. The problem is, in order to hang onto that wealth as an active owner, you need to be lucky all the time.”

You may be that person – the local pharmacist, hairdresser, grocer, high tech company owner or farmer.

At the Pharmaceutical Union seminar I asked the following questions and suggested that the answers the participants came up with would give them a pretty good indication of the state of their personal and family finances and how much part luck was playing.

Why not take the quiz yourself…

-       How much do you earn every year?  How much tax do you pay? 

-       Do you save money regularly?  What rate of return do you get from your personal savings?

-       How much does it cost to run your household every year, including educating your children?

-       Do you keep all your company and personal banking separate? Are your personal finances ring-fenced from your business finances? Do you have a Will?

-       Do you have a personal or executive pension? A personal savings account? What is its current value?

-       Do you know what assets and funds are under investment and in what proportion?  Is your pension on target to meet your spending needs and goals in retirement?

-       Do you manage your personal investments/pensions/insurance contracts yourself or do you use an advisor?

-       Does the same advisor (whether a financial advisor or an accountant) provide services to your company as well? Are you happy that they give the same effort and weight to both?

-       How experienced/trained is the advisor? How is (s)he paid?  Are you getting good value advice?

-       Do you arrange an annual review of your personal finances, in the same way that you have a business audit/review (say, at the end of the tax year?)

-       If you don’t have a private pension and retirement plan in place, what will you live on in retirement?

Start-up businesses are often run on shoe-strings with the owners foregoing a living wage, let alone a personal pension. But that’s not a sustainable prospect forever. Everyone needs a personal and family budget, some savings for the future, insurance to cover accidents and health emergencies and a properly devised pension fund and retirement plan.

The small business owner who postpones that plan isn’t doing themselves or their families any favours.