There is a worrying trend when it comes to Australian business owners planning for their retirement and personal financial future beyond life as a business owner.
- Self-employed people have lower superannuation balances than employees and around 20% have no superannuation savings at all (compared to 8% of salary earners) [1].
- Only 3 in 5 business owners (59%) are currently paying themselves superannuation.
- Less than a third of business owners feel prepared for retirement [2].
- Of the 75% of Australian businesses expected to be put up for sale in the next 5-10 years, only about 25% will sell successfully [3].
To make matters worse, many business owners are dipping into their personal savings to manage business cash flow [4], or are relying on the sale of their business to fund their retirement – but there can be problems with this approach.
Without adequate planning, you may need to compromise on your retirement lifestyle of choice.
Three tips to plan for life beyond business:
#1 Understand how much you will need in retirement
Many business owners underestimate the savings they will need in retirement. It’s important to understand what your retirement lifestyle of choice is likely to cost you, so you can make a plan to help you achieve it.
The Association of Superannuation Funds of Australia (ASFA) Retirement Standard provides benchmark figures to help understand what a ‘comfortable’ retirement lifestyle costs.
How much is needed for a comfortable retirement?
Savings required at retirement: Single: $545,000 Couple: $640,000
Total per year: Single: $42,764 Couple: $60,264
Remember, your own personal expectations for retirement may be different to the ASFA Standard. If your retirement savings are a little lacklustre, you need to start planning now.
#2 Plan your succession
Whether you aim to sell your business, or retire and pass on the management of your business to a family member, it can take years to effectively plan for business succession.
The value of your business can be tied to your personal reputation, making it difficult for a new owner to secure investment or maintain clients, which may also ultimately affect the sale price. Without a transition period you could end up selling your business for much less than you need to.
When it comes to selling your business, timing is everything. While you may be ready to sell, market conditions may prove otherwise. You should prepare your business for sale well ahead of your intended exit from the business – as a rule, the more time you have means more available options.
There are other factors which should also be planned for such as the unexpected exit of you or your business partner due to ill health or other events, which may require additional capital for a buy-out. Transitioning the business to a family member or business partner may involve funding arrangements and other legal and tax implications which also need to be factored in.
#3 Seek advice
For business owners it’s even more important to seek professional advice when it comes to planning retirement due to the complexity in your financial affairs and the inevitable crossover of personal and businesses financials. Depending on your business goals, potential strategies for building a retirement nest egg may include:
Starting a super contributions strategy: Super is a tax-effective way to build your retirement savings and the earlier you start, the better. We can help you manage your business cash flow so you start a contributions strategy for yourself. Changes to caps associated with super means it’s now more difficult to get large amounts of money into super, making it more important than ever to plan ahead.
Utilising a SMSF: A SMSF may be an appropriate strategy for business owners looking for greater control over their investment portfolio (including owning your business premises) in a flexible tax environment, potentially allowing you to plan your retirement income stream and create a legacy for future generations. It’s important to note that there are considerable responsibilities associated with running a SMSF.
Making the most of the sale of your business: We can assist you to get the most from the sale of your business through helping you prepare your bookwork for due diligence by potential buyers, structure the business to reduce complexity for a potential buyer and consider CGT implications. We can also identify potential exemptions included as part of the Small Business CGT Exemption to help boost your super at the time of sale.
If you would like to know more about planning for life beyond business or would like a second opinion, I encourage you to give us a call on 03 9708 8801 or email info@rvpartners.com.au
At Robinson Voss Partners, we have over 40 years combined experience and expertise in accounting, business advice and specialised tax issues.
General Advice Disclaimer: The information contained within this document is of a general nature only and neither represents nor is intended to be personal advice on any particular matter. Robinson Voss Partners (RV Partners) strongly suggests that no person should act specifically on the basis of the information in this document, but should obtain appropriate professional advice based on their own personal circumstances.
[2] https://www.myob.com/au/about/news/2018/1-in-4-small-business-owners-not-making-super-contributions
[4] https://www.suncorp.com.au/about-us/news/media/business-owners-sme-over-me.html
