Investing company money that has built up within a business bank account poses a challenge to many company directors.
If you are a dentist that has decided to incorporate (or perhaps you?ve already done it), or a doctor with private earnings that has incorporated, one of the main differences you?ll have noticed is that there is now another party in your business life.
The Limited company.
Beforehand, life appeared to be simple. You earned your net profits, your accountant prepared your accounts and then informed you how much tax you had to pay in January and July. The after tax net profits were yours to keep and you would usually save any excess in a savings account, offset mortgage or allocate it to investments such as ISAs and pensions.
How easy it all was!
Since you set up your Limited company (which you now work for as you?re an employee), on the advice of your accountant your salary has reduced to a little over ?5,000 pa and, as you feel you might struggle to live on this, you are also receiving dividends each month, as well as periodic dividends as and when required.
But wait a minute, prior to setting up the Limited company your net profit was ?150,000 pa and the turnover of the business has actually increased slightly since then.
Where has all the money gone?!
Of course, as you?ll know the answer is that it?s still there.
The difference is that it sits within the Limited company bank account. The company has its own tax rates (corporation tax) and your accountant is the best person to advise you with regards extracting profit from it.
But one question we?re being asked more is what to do with the cash that sits within the company?
Where can you put it to get a reasonable rate of return?
The starting point is to realise that the savings/investment choices of a Limited company are not too dissimilar from your own as an individual.
Whilst we can?t cover all the options today, let?s take a look at some of the main ones.
1. Deposit Savings Account
It?s likely that your business bank also offers a range of savings accounts in addition to the normal day to day business bank account.
Our view is that it definitely pays to shop around here. Like with accounts available to you on a personal basis the rates are not high at present, however it?s probable that you?ll be able to improve on what your bank is offering.
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Ray Prince -
About the Author:
Ray Prince is a dentists? and medics? financial planning where you can request your free retirement planning guide. Rutherford Wilkinson ltd is authorised and regulated by the Financial Services Authority.
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