If you own a small business, you are probably concentrating on running it from day to day, rather than thinking about retirement.
Employees can often hardly wait to get away from the job. When you own the business, retirement means leaving behind – or even closing down – something that probably took up more of your time and energy than anything else in your life (with the possible exception on your family). You might even see early retirement as defeat, especially if you have built your business from scratch. You might not be able to imagine life without it.
But there’s another reason why some business owners carry on running their business, long after their long serving staff have left. They simply can’t afford to retire at least until they are well past state retirement age.
If you want to have choice, you need to start planning ahead.
Financial planning is essential
As a business owner, you know the importance of financial planning to ensure the business runs smoothly. It’s still just as important when you are planning to give up running it. You need answers to the basic questions, who will own and run it when you go? And will it pay you an income or a lump sum on your departure?
A detailed business exit strategy is the first step. The small business you spend your life building up is possibly your largest asset. If you want it to fund your retirement – and if you want to actually stop working – you’ll either have to liquidate your investment, or find someone who can run it, while you retain ownership.
Staying in control is tempting, as it could provide an income as well as letting you retain ownership, but you need to ask yourself if you will be happy watching the manager you bring in make the decisions. You may want to stay involved, which can soon lead to you discovering you have not retired at all.
To prepare to sell your small business one day, it needs to be able to operate without you. Could you find someone who could run it as well as you could? Would they be in a position to buy it? Who besides you might want to own it and might be willing to pay good money to do so? Are you interested in selling to a partner, a competitor, a relative, an employee? Do you want to retain a partial stake in your business or be done with it entirely?
A lot depends on the nature and size of your business. If the business is heavily dependent on your skills, and you personally, it is likely to be hard to sell, for the simple reason without you there is actually very little to buy.
On the other hand, if your business is large, with premises, a team of good staff and an excellent reputation, selling could simply be a matter of choosing the best offer.
You might need to build your business up for a few years to be in a better position to sell it.
What about a pension?
If you can sell your business for a large enough sum, you might be able to live on the proceeds in luxury.
However, for most small business owners, a personal pension is vital to provide a retirement income, whether or not you sell the business. Plus, it has substantial tax advantages while you are paying in to it. It will help you keep more of the money you make away from the taxman – although there are now limits (now £1 million) on how much you can put into your personal pension pot.
Of course, unlike your employees (who will have the luxury of an auto-enrolment pension that you are required to arrange and contribute towards) it is your responsibility to set up your pension plan – and again the sooner you start, the better off you can be.
Get professional help
If you run your own business, you will understand the importance of professional advice in those areas removed from your own expertise.
So what help do you need?
Help with business finances, to start with. You may be running a successful business – it might be a great deal more profitable if you have a friendly expert who can make sure you are taking full advantages of tax breaks and government funding.
Help with planning how you will pass on your business will also take commercial expertise. There will be numerous tax implications which you will need to consider, where a tax expert will be able to help – and of course, if you want a pension that can provide for your retirement, talking to a pensions expert is a must.
Fortunately, you can find all those experts, simply by calling us.