02 Jun 2025

Who we can help: Case Study – Business Owner Financial Planning

What are some of the key questions to ask yourself if you own or are a director of a business?

This month we’ll consider a case study: Mrs Marmalade owns and manages a business called Toast Company. For the sake of example let’s say Toast Co. is a highly specialised people-development business offering technical and regulatory / compliance training and coaching to financial services firm employees.

Mrs Marmalade, along with her fellow director and equal shareholder, Mr Butter, has built a successful enterprise, with typical revenues of around £1.6m per year, and gross profits of around £450-500,000. They employ 9-10 staff with varying levels of responsibility. Mrs Marmalade and Mr Butter met when they worked in HR and Compliance for the same large bank, and then came up with the idea of their training business, Toast Co., which they subsequently launched, with each of them holding a 50% share in the business.

Mrs Marmalade’s husband, Mr Marmalade does a few hours a week of fractional technology consulting and freelance web-development work, and he also has a part-time role at Toast Co. working on their website and IT support. His main role is as the home-maker, caring for their 2 children (one in secondary school, the other in primary school).

Mr Butter is a bachelor who loves skiing and hiking on weekends. During the week he wins the company a lot of work through his networking and personal relationships with many financial services firms who use the specialist training and coaching offered by Toast Co.

Mrs Marmalade is 49, and Mr Butter is 53. They both pay themselves a modest salary and primarily take their earnings via dividends, although they’ve noticed that the relative tax advantages of this approach seem to have dwindled over time.

For now, although it’s a lot of work and can be quite demanding at times, both Mrs Marmalade and Mr Butter are enjoying running Toast Co. and are happy to see where their journey takes them.

One day I get chatting with Mrs Marmalade. We have a really enjoyable conversation together, and I learn a lot more about her business. But quickly, I realise that there are a number of questions she should be asking herself and discussing with Mr Butter about how to make the best of Toast Co.
But time passes with being busy, and before we can get together, one of the following happens:

• Something changes for Mr Butter:
  • He becomes involved in a relationship with a lady and over time she gets him into thinking he’s carrying Toast Co. and questioning his partnership with Mrs Marmalade
  • he breaks his ribs in a weekend fall and becomes quite withdrawn and suffers low mood without his hobbies – severely impacting his work as a winner of new contracts
• Something changes for Mrs Marmalade:
  • Her husband Mr Marmalade is diagnosed with a life-threatening but treatable form of cancer – leaving him much less able to take care of things at home
  • Mrs Marmalade finds herself exhausted and feeling burned out, and realises she needs to consider how she can exit the business within 5-7 years
  • Mrs Marmalade dies in a tragic road accident
• The business changes:
  • A bumper contract is won off the back of new financial services training requirements, suddenly vaulting the company’s gross profits from £500k to £850k (even after bonuses have been set aside for staff) meaning a very large corporation tax bill will be due
  • 3 of the best trainers in the company all announce they are leaving for rival firms – with the result that Toast Co. struggles to carry out the training it has agreed with its customers

But let’s re-wind a bit.

What are some of the things that caught my attention, and I would have liked to discuss with Mrs Marmalade and Mr Butter – ideally before a crisis emerges?

1. Business Exit – Good and Bad

What agreements do they have in place as directors around any potential exit or ‘divorce’? The adage of hoping for the best but preparing for the worst is true here.

Business partnerships are founded on trust and mutual collaboration, but a good business plan should unfortunately always have a clear ‘divorce’ agreement (and a roadmap for fair conflict resolution) in place before it is ever needed.

Equally, even if all proceeds happily, at what stage might the owners want to consider their options to either reduce their personal work-load or step back from active involvement in the business? And how might they achieve any envisioned exit in more tax-effective ways – either via the sale itself or how they choose to reinvest some of the proceeds of the sale?

2. Disaster preparedness
What financial safety nets do the business and its key persons have in place?

What is the arrangement between Mrs Marmalade and Mr Butter for compensating the estate, if either partner should die while owning a 50% share of the business? Ideally, they should explore protection policies (insurance) that can cover payment (into trust) to compensate any family / beneficiaries of the will for their share of the business – without forcing the business to be sold.

Likewise, “key persons” insurance to cover serious illness or inability to work on the part of any vital persons, including both directors as well as other key staff, may be a prudent expense on the part of the business.

In Mrs Marmalade’s case, she should also consider critical illness insurance to cover her husband, not least because his role in securing their home life leaves her free to commit fully to the needs of the business – and replacing his efforts could be costly or very time consuming.

3. Remuneration Strategies

There are many things to consider, which may also be discussed in conjunction with the firm’s accountant, but they should at least include:

3. 1. Optimising taxes in terms of balance of salary and dividends, while still accruing entitlement to state pension via National Insurance contributions in the most tax-effective way.
   2. Utilising pension contributions for directors made by the business as a tax-effective way to extract value from the business toward the future well-being of the owners.
   3. Choosing employee pensions wisely – the cheapest auto-enrolment pensions are often not as good for a range of different employee investment needs, and choosing a pension scheme for staff based purely on lower cost might send a poor signal to employees or potential new hires about the firm’s attitude to recruitment and retention.

4. Risk Diversification

What have the directors done to diversify their wealth beyond Toast Co?. For business owners, it can always feel as though their own company is what they know best and is therefore theobvious investment, but this can leave them vulnerable to unexpected changes or business-specific risks (e.g. AI or offshoring taking away their customers, regulatory or macroeconomic changes, etc.)
Investments can be made both within the business – for example investing excess cash reserves, as well as outside of the business in the personal capacities of the directors (e.g. in pensions or ISA’s) to spread their wealth across a wider range of assets, geographies, and business sectors – hedging against risks specific to Toast Co.

For most business owners and directors, the day-to-day grind of managing their business takes up a majority of their ‘bandwidth’. But a timely conversation with a skilled and experienced financial planner, who can also introduce them to other professionals for specialist support, can make a big difference to their situation when, inevitably, something changes either in themselves, or the world around their business.

Do you know a business owner who would find a conversation like this useful?

If you are part of a business and would like to discuss any of this further – book a free initial chat together.
https://calendly.com/duncan-bw-hoebridgewealth/30min

None of the above is financial or investment advice and you should speak to me or someone else professionally qualified to give you advice specifically tailored to your circumstances. Financial Protection plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse. A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The value of your investment (and any income from them) can go down as well as up and you may not get back the full amount you invested.