The point at which your business starts reliably generating healthy profits is always a happy one. The chances are that you’ve worked towards it for years and it’s a great feeling to reach your goal at last – but where do you go from there? How you use those profits could make a big difference to your long-term prospects.
In this situation the very first thing you need to think about is tax. If you withdraw your money in the form of dividends so that you can invest it personally, you’ll need to pay personal tax on it. If you keep it in the the business, you’ll need to pay corporation tax, but there are a number of ways of reducing your bill. For instance, if you are an innovative company, you could be eligible for Research and Development Tax Relief, making it a practical option to invest your profits in particular areas of your business in order to increase the amount of profit you have after tax.
Paying into a pension scheme is an investment in your employees (potentially including yourself) and is a great way to reduce your company profits and therefore the amount of tax you pay. When you retire, you will pay no tax on the first 25% of your total pension fund that you withdraw, immediately giving you a pot of money to invest in any way you choose.
When you invest money in equipment for your business, you can set the value of that – up to £25,000 per year – against tax. What’s more, as the value of large pieces of equipment deteriorates over time, you can count that as a loss and count it against tax again, year by year. Meanwhile, as your company acquires more equipment over time, its value if sold will increase, reducing the risk to investors and therefore potentially making it easier to extract additional funding if you should need it.
Many business owners choose to invest in the stock market as a means of building up their assets and generating increased income. If you’re doing this for the first time you can get a helpful calendar, feed and tips at Hammerstone. In addition to trading stocks you could consider forex, which can be really useful when you want to hedge against the currency risks involved in making international trades with your company.
Get smart with shares
Sometimes even a small amount of stock can make a big difference. If you own a single share in a company, you can go along to shareholders’ meetings and get regular updates on its performance. Consider buying shares in your rivals, suppliers or distributors and you’ll appreciate what this means. Becoming a shareholder also gives you the opportunity to meet people in other companies and can be a fantastic tool for networking.
Smart use of your business profits can stand both the business and you personally in good stead. Don’t be tempted to spend what you could invest – play the long game and you could have a lot more to spend in future.