Wealth Check: 'Does managing my business need to be so complicated?'

By Stephen Pritchard
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The Independent Online

Wahida Ashiq has worked in the public relations sector for more than 12 years, and has worked for years at some of the big London agencies. At the beginning of this year she established her own consultancy firm, which she called Juice.

Wahida Ashiq has worked in the public relations sector for more than 12 years, and has worked for years at some of the big London agencies. At the beginning of this year she established her own consultancy firm, which she called Juice.

The business is going well, but managing the finances, including sorting out tax, takes up a lot of her time. Ms Ashiq wants to know whether this needs to be so complicated.

She also wants to start planning ahead for her retirement, and is thinking about consolidating the assets she owns, mainly in property, which she feels is looking riskier.

She wants to make her money work harder and although she finds it hard to save regularly, Ms Ashiq would like to change this.

She is also interested in investing money in property abroad.

WAHIDA ASHIQ, 31, BUSINESSWOMAN

Salary: £36,000 projected

Debt: £3,000 overdraft, interest at 4.4 per cent

Property: Mortgage on a flat, fixed at 4.19 per cent until 2005. Plus buy-to-let house in Walthamstow, mortgage fixed at 4.9 per cent

Savings: None

Investments: None

Monthly outgoings: Mortgage £613; travel £200; food and leisure £540; insurance and bills £400

We put her case to Jennifer Storrow at Gee & Company, Anna Sofat at Destini Fiona Price and Patrick Connolly at John Scott and Partners.

Managing The Business

Ms Ashiq finds the financial management side of her business time consuming, but agrees she needs to devote time to matters such as chasing bills, to keep it running smoothly.

Ms Sofat suggests that Ms Ashiq should set aside at least two hours every fortnight to planning the business and keeping on top of finances. She should also arrange her bank accounts so they are easy to manage - with one for income and bills and one for a reserve. She should then pay herself a salary each month.

Ms Storrow says Ms Ashiq could look at an offshore bank account for business savings, as interest is paid gross and so grows more quickly. She would then simply pay tax on the interest once a year.

Personal Finances

Mr Connolly says that Ms Ashiq needs to build up a cash reserve; £5,000 is a sensible sum. She should also aim to pay off her overdraft, as although the interest rate, at 4.4 per cent, appears low, it is equivalent to 5.5 per cent for a basic-rate tax payer and 7.33 per cent for those in the top bracket.

Ms Sofat says in the short term, Ms Ashiq could move her debt to a credit card with an interest-free period. In the medium term, she needs to budget to pay off the overdraft, and to build up a cash reserve.

Mr Connolly recommends cash, or investment ISAs for longer-term savings, as they are flexible and offer tax breaks.

Pension

Ms Sofat says that Ms Ashiq needs to decide when she wants to retire, and how much income she needs in retirement. The sum she will need to save might come as a shock, but the sooner she starts to put money into a pension the better.

Ms Storrow points out that higher-rate tax payers benefit from tax relief on pension contributions at 40 per cent. With Ms Ashiq's income on the margin between the basic and higher rate tax brackets, the amount she pays into her pension may well determine her overall tax rate. She can invest in a pension through a lump sum, when she has the cash to hand.

Mr Connolly suggests Ms Ashiq combines a pension with savings through ISAs for the best mix of flexibility and tax relief.

Property

All the advisers on the panel caution that Ms Ashiq is running a risk through her exposure to the property market.

Mr Connolly suggests Ms Ashiq should put money into other investments. The property market has done well recently, but there is no future guarantee. She will pay capital gains tax on profit over £8,200 if she sells her investment property.

Ms Sofat says buy-to-let can be a good long-term investment option. However, she would not normally recommend that someone invests in a rental property until they have their other finances organised well. From 2006, Ms Ashiq will be able to put residential property into a pension fund, but only if her overall pension savings are large enough. If she keeps the buy-to-let house, she will need other retirement savings too.

Ms Storrow says that buying property overseas would be very risky indeed, at least as long as Ms Ashiq has so much of her money tied up in property market. Ms Ashiq should look at more liquid assets instead as it is hard to sell property fast.

Advisers' views are given for guidance only.

If you would like a financial check-up, write to Wealth Check, The Independent, 191 Marsh Wall, London E14 9RS, or e-mail cash@independent.co.uk

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