How To Protect Business Profits

Predicting a rocky road ahead and don't want to lose everything we've worked for

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Hello Everyone,

 

My wife and I own a business (LTD company), that up until very recently has been doing rather well.  

 

We turned over £1+m last year and had profits of over £600k.

 

The plan has always been to leave all profits in the business and exit in a few years time via a sale, claiming ER to reduce the tax liabilities. So we currently have over £700k just sitting in the bank.

 

However the coronavirus situation will undoubtedly hit us extremely hard and along with a few other issues looming on the horizon, I can forsee a very, very rocky road ahead. I'm incredibly nervous that our cash surplus will dwindle very fast over the next 6-12 months and we'll be left with nothing. 

 

Is there any good way of removing/ringfencing a large proportion of that money now, so that if my predictions are true, our money is safe? I really want to avoid losing the cash we've built up if the business should go under. 

 

We cannot simply cease trading now as we have £250k of paid-for bookings up until October this year.  

 

Any advice warmly welcomed. 

 

Many thanks

 

Collin

Replies (15)

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By Tim Vane
15th Mar 2020 03:29

How can we possibly answer that when we know exactly nothing about what your business is, how it operates, what the cash-flow requirements are, how many employees you have, what your turnover is, how profitable you are, or any other single useful piece of information?

This forum is now a complete and utter joke.

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Replying to Tim Vane:
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By CollinTelby
15th Mar 2020 07:42

Wow, what a lovely guy.

I can understand that you may need more information and therefore can't help until then. I can understand that you may not wish to answer at all. What I cannot understand is why any human with even just a tiny bit of empathy would write something like that when someone else (who is clearly very worried) asks for a little advice.

Forget it Tim, I'll chat to my accountant Monday. Really hope witting those kind of responses makes you feel a bit better about yourself.

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Replying to CollinTelby:
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By thevaliant
15th Mar 2020 22:18

Although you have received four thanks, at time of writing, and Tim only one (soon to be two), you have confessed yourself you HAVE an accountant.

They will be in a far better position than us random strangers on the internet to provide business advice. And in fact, I'd go further. The problems you are going to face (as we all are) are NOT going to be solved by your accountant alone.

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Replying to Tim Vane:
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By Accountant A
15th Mar 2020 11:29

Tim Vane wrote:

This forum is now a complete and utter joke.

Didn't you read John Stokdyk's announcement on Friday? This is what 'Accounting'Web is all about now. We are here to provide free professional advice to wealthy business people and the general public who may happen to pass by to blag a freebie before disappearing back into cyberspace.

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By Richard Grant
15th Mar 2020 06:42

With out more information it's impossible to say but you appear to be sitting on a large cash surplus and run with very high margins (60% ish). You seem to be in a good position to wind down and sit it out. Many people won't be and don't have the cash buffer.

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Replying to Richard Grant:
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By CollinTelby
15th Mar 2020 07:43

Thanks Richard, really appreciate your honest, yet polite response. Wish others had the same manners.

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Replying to CollinTelby:
Red Leader
By Red Leader
16th Mar 2020 11:41

You may want to ask to see the cashflow forecast that the answer is presumably based on.

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By johngroganjga
15th Mar 2020 10:12

If you turnover dwindles, what are the fixed costs you will want to pay out of your accumulated cash balance?

Your question is, in effect, how can you not pay them. The simple answer is that you must stop thinking it is the company’s interests to pay them

Until you tell us what the costs are, no-one can help you further.

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By legerman
15th Mar 2020 10:45

If you're making over 50% profit p.a. and sat on 700k cash reserves then you're in a really good position.

Costs is the area you need to be looking at and whether you can reduce them by scale as bookings decrease.

But see your own accountant. He knows you and your business and will be better placed to give you tailored advice.

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By Accountant A
15th Jun 2020 20:36

=0

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By zebaa
15th Mar 2020 14:07

Make a big pension contribution. Make sure you designate the fund, as maybe shares are not a good bet just now. Take a big divi & the tax hit with shrug.

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Replying to zebaa:
By johngroganjga
16th Mar 2020 11:02

Yes but what if his priority is to use the money to cover fixed costs? Your suggestion will prevent him from doing so.

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Lone Wolf
By Lone_Wolf
16th Mar 2020 11:11

£700k in the bank. Blow it all on drugs, drink and ladies of questionable virtue before the world ends.

We'll all be dead anyway so don't even worry about the tax implications.

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By Duggimon
16th Mar 2020 12:17

Based on the information given, you can easily ring fence the money by just not spending it.

There is no reason, based on the information thus far provided, that you would not be able to do so.

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By gogzyb
16th Mar 2020 13:14

If you were my client, I would consider forming a holding company. Subject to obtaining advance clearance from HMRC, you and your wife would exchange your shares in LTD for new shares in the holding company, so that LTD became a wholly-owned subsidiary of the holding company and you and your wife owned 100% of the shares in the holding company.

Your LTD could then pay a dividend (tax-free) to the new holding company, which would protect any excess cash from the risks associated with trading activities over the next few months - achieving the 'ring-fencing' that you are hoping for.

In terms of cost, I would expect to pay around £1,250 to £1,750 plus VAT for this advice, including clearances and share transfers - assuming that you use a reputable accounting firm.

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