Financial Planning for Business Owners

At Opes Financial Planning, our mission is to guide you in making informed financial planning decisions that cater to the needs of you, your family, and your business both now and in the future.

With a rich history as a Financial Planning practice, our expertise lies in crafting and executing robust financial plans and business strategies, aiming to elevate overall financial well-being and optimize the tax-efficient transfer of business wealth into personal wealth over time.

Our approach involves delving into your financial history, understanding your current financial standing, exploring your motivations, and identifying your future goals.

We map out your financial future through our interactive cash flow modelling software, providing you with a visual representation of the path ahead and we will highlight shortfalls or areas of concern which need to be addressed as well identify any opportunities that would benefit the overall financial plan.

 

Setting up a Business

Employment Investment Incentive (EII)

The Employment Investment Incentive (EII) in Ireland is a government scheme that provides tax relief to individuals who invest in small and medium-sized enterprises (SMEs) or startups in Ireland. Investors can receive 40% tax relief on their investment, with 30% claimed in the year of investment and 10% after three years. To qualify, companies must have fewer than 250 employees, be involved in eligible business activities like innovation and job creation, and use the funds for expansion. The scheme helps businesses raise capital for growth while offering tax incentives to encourage investment, benefiting both investors and the broader Irish economy.

 

Start-Up Relief for Entrepreneurs (SURE):

The Start-Up Relief for Entrepreneurs (SURE) in Ireland provides tax relief to individuals starting their own business for the first time. Entrepreneurs can claim income tax relief of up to €100,000 over a 6-year period based on their previous income tax payments, helping to reduce the financial risks of starting a new business. The scheme applies to new, independent businesses with fewer than 50 employees that are based in Ireland and contribute to job creation. SURE aims to encourage entrepreneurship and economic growth by offering financial support to new business owners.

 

Optimise Pensions

While some entrepreneurs view their business as their retirement plan, relying solely on this can be risky. Contributing to a pension offers a more secure retirement strategy and will bring some diversification to the overall financial plan. Business owners can benefit from tax-efficient savings into pension structures, including deductible employer contributions against corporation tax. These contributions would not be subject to any benefit in kind, such as income tax, PRSI, or USC. Several different pension structures can be chosen, such as PRSA’s and Executive Pensions. Each will have different advantages and disadvantages, so it is important to get advice on the most suitable product, considering individual circumstances.

• Taxes are deferred until you withdraw funds in retirement at a time when you will generally be paying a much lower tax rate. Pension funds will also offer a tax free lump sum at retirement.
• Monies held in a pension structure will enjoy tax-free growth. This means that any capital gains, interest, or dividends earned on the investments held within the pension account are not subject to annual income tax. This tax-deferred growth potentially allows your investments to grow faster.

Diversify Investments

While prioritising business growth is crucial, it's equally essential to implement a comprehensive investment strategy within the business and when extracting profits. Whether opting for a Corporate Investment Bond or channelling profits into a Pension for the Directors, which should also have diversification across various asset classes such as equities, bonds, and cash, is key. This diversified approach helps cushion potential financial setbacks if your business doesn't meet anticipated performance levels. Seeking the guidance of a financial adviser can aid in crafting a personalized and diversified portfolio.

 

Safeguard Against Risks

Beyond insuring business assets, protecting your most valuable asset—yourself—is crucial. As the linchpin of your business, insurance against death or illness ensures continuity. Consideration should be given to putting in place insurances to protect against the loss of human capital.

Executive Income Protection

In the event of an accident, disability, or diagnosis of a serious illness preventing you from working, your company can hold Executive Income Protection. This offers a maximum payment of 75% of your pre-disability salary until your return to work, your normal retirement age, or in the unfortunate event of death—whichever occurs earlier. Notably, Executive Income Protection is a non-BIK benefit, and your company can claim the entire cost as a tax-deductible trading expense. Again, no Income Tax, PRSI or USC either would be applied either.

Death in Service

Your company has the option to put death in service (life insurance) in place for any employee including the business owners.  An amount of up to 4 x salary can be paid out to an estate as a tax-free lump sum in the unfortunate event of death before retirement. Importantly, the company can claim the full cost of this protection as a tax-deductible trading expense.

Shareholder Protection

Shareholder Protection involves a life assurance policy implemented by a company or shareholders. Its purpose is to secure the necessary funds for purchasing the shareholding from the estate of a deceased shareholder or partner.

Keyperson Protection

This entails a life assurance policy put in place by a company, specifically on a key employee. Its function is to compensate the company for the loss of the key person or to repay business loans in the event of the key person's demise.

 

Strategise Your Exit

Even if the idea of exiting your business seems distant, planning in advance can yield significant rewards. Determine your 'magic number'—the amount required from a business sale to achieve your desired lifestyle.  Viewing the sale of the business as a desirable addition rather than an absolute necessity is integral when considering all facets of a comprehensive financial plan. Being prepared for a potential sale doesn't signify an imminent decision to sell the business. Instead, it ensures that, if presented with an acceptable offer or compelled to sell, the business is in optimal financial condition to facilitate the transaction.

Various options exist when contemplating the sale of a business, including selling to family members, company management, merging with a competitor or a related business, or enticing a new entrant seeking to acquire market share. Moreover, there are reliefs available to mitigate the exposure to Capital Gains Tax (CGT) on the disposal of business shareholdings/assets.

Retirement Relief

Retirement relief in Ireland provides Capital Gains Tax (CGT) relief on the disposal of business or farming assets, facilitating tax-efficient transfers, particularly during retirement. Recent legislative changes, effective from 1 January 2025, have adjusted the relief thresholds based on the age of the individual and the nature of the transfer.

Disposals to a Child:

• Aged 55 to 69: Individuals can claim relief on qualifying assets up to a value of €10 million.
• Aged 70 and above: The relief is capped at €3 million.

 

Disposals to Persons Other Than a Child:

• Aged 55 to 69: Full relief is available on disposals of qualifying assets up to €750,000.
• Aged 70 and above: The relief limit reduces to €500,000.

These adjustments aim to balance the facilitation of business succession with equitable tax treatment, ensuring that retirement relief continues to support the efficient transfer of business assets while reflecting current economic considerations.

 

Entrepreneur Relief

Entrepreneur relief reduces capital gains tax from 33% to 10% on the sale of a business, applicable up to €1,000,000. This provides an additional avenue for optimizing tax outcomes when transitioning from business ownership.

 

To sum up, achieving success as a business owner comes with various advantages, offering the chance to maximize company benefits for personal enrichment. Prioritizing the efficient extraction of company profits, particularly when the business is financially stable, should be a central focus. Opes Financial Planning is poised to support you in crafting a strong financial plan as you navigate this journey.  Please contact us should you wish to discuss these opportunities.