33% of business owners rely on the sale of their business to fund their retirement.*
This is a foreboding statistic and one that we believe is a very conservative number.
Our belief is based on what we are seeing in the SME market – many business owners have, somewhat understandably, an exaggerated opinion of what their business is or will be worth. So when they answered the survey – they ticked YES we will have adequate funds to retire and the sale of our business will fund our retirement plan.
Not necessarily so!
Businesses are not worth what they used to be and they are not being valued in the same way.
- Buyers are not buying the business as a whole – they are dissecting the business and buying only that part that they need. For example, they may be buying the people, the location, the IP, or access to customers. On the other side of the coin, the seller is selling the entire business, all assets both tangible and intangible – their baby in which they have invested what feels like a life time (and often is). So the buyer and the seller go to the table buying and selling entirely different things which are valued very differently.
- Lower barriers to entry to business mean that people may prefer to ‘start up’ rather than buy an existing business. The new wave of entrepreneurs are prepared to take the risks of starting afresh in order to build a business that is less traditional and conventional, and more future ready and innovative. Starting from scratch is often more feasible than deconstructing and reconstructing.
- Many owners have not planned for their business past their retirement date. They have invested so much time and energy in the business and are emotionally exhausted, so the only way they can get through another day is to live for that nirvana – the sale and retirement. What this means is the business is taken to market without a strategy for the future – it is neither relevant nor future ready. As a consequence the sale price reflects the lack of surety around future profit and sustainability.
All three of these scenarios dramatically impact the sale price and how well business owners are able to fund their lives post retirement.
So what can you do NOW to ensure you, as a business owner, are adequately prepared for retirement?
- Start planning for retirement earlier, much earlier than you anticipate. Considering almost half of retirees admit they did not start saving early enough – learn from their mistakes.** Start planning now. Set your intentions for your life, which includes your retirement. Knowing what kind of lifestyle you want when you retire will help you determine how much you will need to fund it.
- Maximise profitability over the entire life of the business to ensure accumulation of wealth along the way, which will enable you to be in a better financial position to retire at some future date (this includes looking at your planning, systems, leadership, team, innovation and so on).
- Design and build a business that will have value when you want to sell. This means planning past your retirement date and ensuring that the business is future ready.
- When making decisions in your life, consider how that will impact on your intentions for your retirement and adapt accordingly. Major life events have affected almost three quarters (74%) of pre-retirees retirement savings, this includes paying off a mortgage (36%) or starting a family (20%).
- Review your intentions/plans every year, every 3 years, 5 years, and every 10 years and so on, and amend where necessary, particularly in light of current economic circumstances and changes in your circumstances
- Diversify. Do not solely rely on the sale of your business to fund your retirement – because you may find it’s not worth what you think it is.
- Do not rely on Government pensions. Policy changes down the track may affect you.
Take our FREE online Business Fitness Assessment to find out how Retirement FIT your Business is, in under 10 minutes!
* MGI Australian and Private Family Business Survey, 2013
** HSCB The Future of Retirement – A Balancing Act 2015