Business reliance for retirement income
The article focuses on the potential dangers of relying solely on the sale of a business to finance retirement, and offers steps on how to prepare for the sale or succession of your business, such as building up superannuation.
Relying on your business for retirement income can be a risky gamble
Do you prioritise reinvesting spare funds in your business over contributing to superannuation with the goal of selling your business at a higher price when you retire?
Do you envision a future where you can sell your business for your desired price, turn off the lights, and leave without any regrets? It seems like a perfect scenario, doesn’t it?
Recent years have shown that selling a business can be a risky venture. There is a possibility that finding a buyer may be difficult or that the buyer may not be willing to pay the desired price.
If you own a farming business, the idea of passing it on to your children may be very important to your family. But if you do this, how will you fund your retirement? This can be a difficult problem to solve.
If you do not make a plan, you are setting yourself up for failure.
Steps in preparing for the sale or succession of your business
Consult with a professional
It is necessary to consult with your accountant or business adviser to assess the value of your business and determine potential improvements. They can provide valuable insight on the current state of your business and any steps you can take to increase its value to a potential buyer.
Although you may believe your business is doing well, an outsider’s perspective may differ. For instance, you may not be utilising the latest accounting and software systems or have a clearly outlined operations manual. This could cause it to take several years for your business to become appealing to potential buyers.
Aim for consistent growth and profits
You should aim for consistent growth and profits over a number of years to attract interested buyers.
It is important to conduct a realistic and independent evaluation of the potential price a buyer may pay for your business. As a business owner, it may be tempting to overestimate the value of your business due to the effort and dedication you have put into running it. Seeking independent advice from an outside party can help provide a more accurate assessment.
If you are concerned about not achieving the desired retirement funding level, then maybe you should think outside the square:
- Is it possible for you to acquire a strategic asset that could increase the appeal of your business to potential buyers?
- Are there any potential junior partners or current employees within your company who may be interested in eventually taking over the business Can you provide support to help them achieve this goal?
Boost your existing contributions to super
The more funds you have in your super account, the less dependent you will be on the sale price of your business.
Additionally, by structuring your superannuation contributions, you can legally minimise tax liabilities. Furthermore, utilising superannuation may also help reduce potential capital gains tax on the sale of your business.
Having a strong retirement savings plan within your superannuation will provide you with more leverage when negotiating the sale of your business and potentially allow for longer payment terms.
Reach out to us to learn how we can assist in reducing the risks of relying solely on the sale of your business for retirement income.
