Wealth Check: 'How can I be clever with money while running a new business?'

A PR agency owner wants to make the most of her savings while finding cash for a deposit on a flat



The Patient


Lisa Bryant, from Clapham, south London, is keen to invest her money wisely after starting a new business venture. The 27-year-old founded BumpPR just over a year ago, specialising in public relations for the baby sector.

"I'm not seeking huge growth," she says. "But I'd like the company to enable me to work and have a family in the future – and I don't think I'm making the most of my money."

During the first year, she paid herself a salary of about £12,000 topped up by dividends for basic living costs, and managed to avoid taking out a bank loan to set up the business. She has yet to calculate the first year's profit, but hopes it amounts to about £50,000, with much of this money ploughed back into the business, and she has one member of staff.

She has managed to build up a surplus fund across several accounts, all with Norwich & Peterborough. This includes £18,000 in a business account paying 0.1 per cent, £10,000 in a current account set aside for tax purposes, and another current account for living costs. "I want to have a structure to help me save the tax payments, but feel I could be cleverer with the money," she says. "It's just sitting there making me nothing, and I'd like to set aside savings."

Lisa attempts to keep outgoings to a minimum after rent, which costs her £670 a month for a room in a two-bed flat in Clapham. Last year she moved back in with her parents to save enough to kick-start the business. She admits to being keen to buy, but is focusing on the company until she is in a position to apply for a mortgage. "Eventually, I would like to buy a flat outside London for about £200,000," she says.

She is not paying into a pension scheme. "I am more about the here and now, although perhaps once I own a home I will think more about it." She has no protection policies in place.

The Cure

While Lisa is in a good financial position to build the business with no debts and a small cash pile, she is wise to seek advice, says our panel of independent financial advisers (IFAs). She could make more of her money and must also consider protecting her income.

"The key thing for Lisa will be balancing saving for medium-term goals, such a house deposit, while reinvesting profits back into her business to help it grow – as well as protecting it," says Dennis Hall from IFA Yellowtail Financial Planning.

Use your ISA allowance

"Lisa is wise to get into the practice of setting aside money for corporation and personal tax early into her business career," says Lorreine Kennedy from IFA Carematters. But if she hasn't already done so, she should consult an accountant to determine future and past tax liabilities.

Mr Hall says: "I am assuming that she has been paying herself £12,000 on a PAYE basis, and making payments to HMRC for national insurance. If she hasn't, and has simply been drawing the income, then she needs to deal with this quickly."

Aside from the company, Lisa's personal goal of buying a property must be considered. Ms Kennedy says: "Lenders today will not lend to anyone without a decent deposit, and for a first-time buyer with a new business it will prove almost impossible to secure a mortgage without at least two years of accounts and a substantial deposit on a property."

Lisa should prepare a business plan to show how she will manage to grow her income and savings over the next few years. Even with a deposit of £50,000, she will still need an income of about £40,000 to £45,000 – whether by salary alone or including regular dividends – to secure a mortgage of about £200,000.

Matthew Rich from IFA Alan Seward Financial Services says: "Keeping her money in basic savings accounts rather than seeking returns from the stock market is sensible, as her timescale is not long enough to safely cope with potential stock market volatility."

While N&P offers what many small businesses want – online banking and low transaction fees – for those businesses with surplus funds, the rates are not attractive. Going forward, Lisa should switch to a higher-paying account and save into a cash individual savings account (ISA), keeping an eye on the rate of interest. She should be prepared to transfer this to a different provider if the rate falls.

"Lisa could switch to the Santander Business account, giving her £100 cashback and paying 5 per cent on balances up to £2,500 for the first 12 months," says Mr Rich. "And money her business doesn't require can be withdrawn with £5,340 put in a tax-free cash ISA such as Santander's flexible ISA, currently paying 3.3 per cent."

Protect your business

Lisa should consider insurance contracts. "While being your own boss gives you a huge amount of freedom, it also means that if you fall ill your business grinds to a halt and soon after so does your income," says Mr Rich.

Given that illness could hamper Lisa's future earning potential and lifestyle, she should consider products such as income protection, which pays out a regular income when the policyholder is unable to work for medical reasons. "She would have to be careful as if she made a claim – with a new business it could be difficult to prove her income – but her interim accounts could be used to do so," says Mr Rich.

The policy costs will vary depending on the contract specifics. But for Lisa's age and occupation she could get cover to pay out £1,500 per month tax free once she is unable to work for two months at a starting cost of about £25 per month.

"Lisa should also consider professional indemnity insurance if she hasn't done so already," says Mr Hall. PI insurance protects the business against claims for loss or damage made by a client or third party if you make mistakes, or are found to have been negligent in some or all of the services you provided. PI insurance will also cover legal costs.

Employer's liability insurance is required by law if a business employs any staff. The cover is normally at standard limits. This insurance enables businesses to meet the costs of compensation and legal fees for any claims from employees.

Planning for the future

Lisa has many more decades of work before she will be eligible for a state pension. Given this, she has a number of choices when it comes to planning for the future, says Ms Kennedy.

"In the first few years of building the business, Lisa is wise to consider saving for her future using ISAs rather than pensions," says Mr Rich. While she will lose valuable income tax relief on any pension contributions, at least the capital within her ISAs will remain available if the business runs short of cash. While pensions are granted valuable income tax relief when a contribution is made, the downside is the pension cannot be tapped until age 55 at the earliest.

However, as her business and income grow, she could make use of a self-invested personal pension (Sipp), add the advisers. This has the widest choice of investments and a low-cost Sipp can often be cheaper than a stakeholder pension.

Do you need a financial makeover

Write to Julian Knight at The Independent on Sunday, 2 Derry Street, London W8 5HF

j.knight@independent.co.uk

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

Suggested Topics
Voices
There will be a chance to bid for a rare example of the SAS Diary, collated by a former member of the regiment in the aftermath of World War II but only published – in a limited run of just 5,000 – in 2011
charity appealTime is running out to secure your favourite lot as our auction closes at 2pm today
News
people
Arts and Entertainment
Bianca Miller and Katie Bulmer-Cooke are scrutinised by Lord Sugar's aide Nick Hewer on The Apprentice final
tvBut Bianca Miller has taken on board his comments over pricing
Life and Style
Approaching sale shopping in a smart way means that you’ll get the most out of your money
life + styleSales shopping tips and tricks from the experts
PROMOTED VIDEO
News
Elton John and David Furnish exchange marriage vows
peopleSinger posts pictures of nuptials throughout the day
News
in picturesWounded and mangy husky puppy rescued from dump
News
newsAstonishing moment a kangaroo takes down a drone
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    SThree: Trainee Recruitment Consultant - LONDON

    £20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...

    SThree: Graduate Recruitment Consultant

    £20000 - £25000 per annum + OTE £35000: SThree: SThree are a global FTSE 250 b...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE £35K - £45K: SThree: SThree Group have been we...

    Day In a Page

    Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

    Clocks, rifles, swords, frogmen’s uniforms

    Surrounded by high-rise flats is a little house filled with Lebanon’s history
    Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

    Four months after the bombardment, Gaza’s wounds are yet to heal

    Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
    Gastric surgery: Is it really the answer to the UK's obesity epidemic?

    Is gastric surgery really the answer to the UK's obesity epidemic?

    Critics argue that it’s crazy to operate on healthy people just to stop them eating
    Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

    Homeless Veterans appeal: Christmas charity auction

    Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
    Pantomime rings the changes to welcome autistic theatre-goers

    Autism-friendly theatre

    Pantomime leads the pack in quest to welcome all
    The week Hollywood got scared and had to grow up a bit

    The week Hollywood got scared and had to grow up a bit

    Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
    From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

    Panto dames: before and after

    From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
    Thirties murder mystery novel is surprise runaway Christmas hit

    Thirties murder mystery novel is surprise runaway Christmas hit

    Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
    Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

    Anne-Marie Huby: 'Charities deserve the best'

    Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
    The botanist who hunts for giant trees at Kew Gardens

    The man who hunts giants

    A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there
    The 12 ways of Christmas: Spare a thought for those who will be working to keep others safe during the festive season

    The 12 ways of Christmas

    We speak to a dozen people who will be working to keep others safe, happy and healthy over the holidays
    Birdwatching men have a lot in common with their feathered friends, new study shows

    The male exhibits strange behaviour

    A new study shows that birdwatching men have a lot in common with their feathered friends...
    Diaries of Evelyn Waugh, Virginia Woolf and Noël Coward reveal how they coped with the December blues

    Famous diaries: Christmas week in history

    Noël Coward parties into the night, Alan Clark bemoans the cost of servants, Evelyn Waugh ponders his drinking…
    From noble to narky, the fall of the open letter

    From noble to narky, the fall of the open letter

    The great tradition of St Paul and Zola reached its nadir with a hungry worker's rant to Russell Brand, says DJ Taylor
    A Christmas ghost story by Alison Moore: A prodigal daughter has a breakthrough

    A Christmas ghost story by Alison Moore

    The story was published earlier this month in 'Poor Souls' Light: Seven Curious Tales'