Retirement Planning For Small Business Owners
Retirement Planning For Small Business Owners
We’ve talked a lot in recent weeks about the needs of small business, particularly in relation to succession and estate planning. In this final piece of the puzzle we wanted to cover specifically retirement planning for small business owners.
For many small business owners, the ‘plan’ is to sell their business when they are ready to retire, thus providing their retirement nest egg. But in reality retirement planning for small business owners is much more complex than this.
It may be that when you are ready to sell you struggle to find a buyer. Or if you do find a buyer they don’t want to pay the price you were hoping for. So, while investing in your business is essential, it’s not the only thing you should be thinking about in relation to retirement planning.
First Things First
Before you can make any concrete plans you need to have made a decision about your business, and when you might want to retire.
Do you intend, or need, to sell the business to fund your retirement? Or would you like to retain partial or full ownership of the business and continue to receive an income? This will depend on the structure of the business, your lump sum and income needs, and your ability to find someone to either continue to run, or to purchase, the business.
This decision may also be impacted by market volatility. If the market is not great at the time you wish to retire, it may mean you need to hold out for better conditions in order to achieve the price you need. This means you may need to be flexible in your planning.
Take a look at our article on Succession Planning if you would like a little more information on this important consideration.
Getting Things In Order
Assuming you have decided you would like to sell your business to fund your retirement, you will need to ensure your business is an attractive proposition for a prospective buyer. Not just to maximise the sale price, but to ease the selling process.
It can be easy to overestimate the value of your business. After all, you’ve probably put blood, sweat and tears into getting to this point. So it is important to seek independent outside advice on what your business is worth as-is and what you may be able to do to increase its value to prospective buyers.
You will need to show not only several years of steady profits, but also steady growth to entice buyers. You will likely also need quality accounting and software systems, along with a clearly documented operations manual, a stable workforce and customer base, and a clear management structure. If you don’t already have these things in place it could take several years to get everything in order, so early planning is essential.
Seeking out the advice of your accountant or business advisor would be the best first step.
Don’t Ignore Superannuation
Of course. As a small business owner it’s tempting to ignore your superannuation and pump all your spare funds into your business. After all, this is your livelihood. And probably a large part of your planned nest egg.
But putting money into superannuation provides a number of key benefits in retirement planning for small business owners:
- The more you have in super, the less pressure you are under to achieve top dollar for your business, which will reduce the stress around the sale
- You can minimise tax liabilities through superannuation, and may even be able to reduce capital gains liabilities you might expect on the sale of your business.
- Having a healthy nest egg will provide you breathing room to negotiate extended payment terms should you need to
The Family Farm
One of the toughest small businesses to ‘retire’ from is the family farm. Often, a farm is not thought of as a business in the traditional sense. But it is no less a business than any other entity that generates income.
The idea of passing the farm on to the next generation can be deeply embedded within farming families. But if that is the plan, how do you fund your retirement, which may stretch for decades?
Complications can also arise when there is more than one child or grandchild who would like to take on the farm. Finally, this type of business is often cash poor and asset rich, but talking to an experienced financial planner, ideally early in the process, will help you work through these retirement planning complexities.
It’s Never Too Early
As with just about everything, when it comes to retirement planning for small business owners, it’s never too early to start. Seeking professional advice from your accountant, business advisor, or a qualified financial advisor, can help ensure when it comes time for you to start that well-earned retirement you have sufficient funds to enjoy the lifestyle you want.
If you are approaching retirement and are not sure how to juggle investment in your business with building up your superannuation, Manly Financial Services can help. With over 13 years of experience, there’s not much we haven’t come across. Give us a call on (02) 9976 3388, or contact us via the below link, if you’d like to know more.