When starting out or developing a business, most owners of architecture and building firms typically channel all their energy into growing the business – after all, that’s their biggest asset. As Nathan Lear explains, this narrow vision can sometimes limit the long-term goal of gaining financial independence.

As a business develops, it’s important for the owner to get clarity on what they want for both themselves and the business over the next five, 10 and 30 years and build a plan on how to get there.

Long-term planning
For those who have invested in their business to a point where they have people employed and structures in place to ensure sustainability, it’s time to consider whether you need to continue investing in the business or take money out to build personal wealth and plan for the long-term.

It’s vital to get in the forefront of your mind ‘the end game’ to re-confirm why you are in business and what you want to achieve. Are your goals based around having a better lifestyle and freedom and flexibility to work for yourself, or do you want an asset which has all the structures in place to continue on after you retire?

Conscious planning
Owners of building or architecture firms need to take the time to invest in ‘conscious planning’. This will help identify what strategic investments can be made now in order to grow the business in the future and establish your own financial security.
Without a plan, you’re risking an ‘all-eggs-in-one-basket’ approach with little to no diversification in asset structure or investment approach. There is also a risk of leaving yourself open to potential issues and missed opportunities.

Planning for retirement is also one of the most important financial investments every business owner needs to keep in mind, but often fails to think about. Yes, it’s important to grow and make significant re-investment in your business, but don’t forget those long-term dreams of taking overseas trips once you finish working.

Succession planning
Given many building and architecture firms are family-owned, succession planning is important to ensure you have an asset that can be passed down through the family on retirement. If you plan to leave behind a legacy for family members, you must build an asset that has value beyond the founder.

Milestone planning
A key milestone for many business owners is determining whether and when they can invest their hard earned savings into a Self-managed Super Fund (SMSF).

The general rule of thumb for investing in an SMSF is holding over $250,000 in super. Running an SMSF is a significant decision and really isn’t worth considering if the cost of running outweighs the benefits. With this sum in mind, it’s vital you speak to a qualified financial planner or adviser about what specific choices and decisions you need to make in your business to allow you the chance to reach this financial milestone.

Once you get to a point where you have a significant financial pool to work with, there are some significant benefits for owners of building or architecture firms.

Owning your business premises
For owners of firms that operate from a business premises, owning this premises will effectively allow you to pay rent to yourself. This will allow you to re-invest your money back into your retirement nest egg: the most important non-business asset when you finish working.

Flexibility in asset investments
The building and construction industry is cyclical – its performance is tied to the business cycle and is affected by the ups and downs in the overall economy. Considering the recent property market growth (which has had a significant impact on the overall construction industry), it’s important for business owners to lock in gains in the good years and diversify into other areas to ensure the investment risk is spread across various asset classes.

Effective tax management
SMSF trustees can take advantage of tax concessions available within the superannuation sector. The maximum tax rate for investment income earnings is currently 15% rather than the individual’s marginal tax rate. So, if you have your business premises owned by your SMSF, the rent you pay is generally tax deductible to your business and is only taxed at 15% in the super fund.

Asset protection
One risk of an SME is that of the potential for the business to fail, taking with it the accumulated wealth of the business owner. Although nobody goes into business expecting to fail, it makes sense to have appropriate asset protection mechanisms in place should the unforseen occur.

Estate planning
Those with business assets, SMSF assets and other structures in place will need to take particular care with their estate planning arrangements. Only personally owned assets will be controlled by your Will. A Will cannot dictate what occurs with business assets, family trust assets or superannuation benefits.

While SMSFs and other structures provide many benefits and increased flexibility when dealing with estate planning arrangements, it is also important to ensure arrangements match your desired outcome.

Getting advice in this area is crucial and must also deal with the sale or succession issues for your business. Such arrangements should include appropriate levels and ownership of life and disability insurance.

Establish a family trust
One key advantage of a family trust is the asset protection it can offer the business owner. Assets of the family trust are not personal assets and can assist in protecting wealth should the business fall on hard times, or even fail.

However, if appropriate for the individual, such structures should be established early on – otherwise you may fall victim to unintended taxation consequences down the track. Operating your business via a family trust can assist in the tax effective withdrawal of profits from your business, while also providing a structure within which to accumulate capital for the long-term.

Nathan Lear is the director and private client adviser at Hewison Private Wealth.