Your Business as Retirement Plan

We work with number of business owners and they are very passionate about their business.

They can tell you all about their income and growth trajectories, current stock levels even the name of their clients children. But when it comes to their own finances, they sometime don’t even know how much there is in their bank account.

Most of the time it is not that they don’t want to know they are just so busy running their business that they forget about their own finances.

The consequences of the lack of attention to their own finances can lead to:

  • Paying more tax than necessary.
  • Neglecting their own wealth.
  • Not having a succession plan for their business.
  • Not having an up to date will or estate plan in place.

Working with business owners, a few comments we receive are as follows:

Is Retirement planning really necessary?

Most business owners see their business as their biggest asset and put their life and soul into the business with the intention that the business will be their retirement plan.

Unfortunately we know about a lot of stories where the business can’t be sold for the perceived value or the children start working in the business and the children are not able to “buy” the business. There is also the risk that the business fails before you retire.

Your business is where you create wealth. To preserve wealth need to diversify your assets. As with any investment it is better to diversify than to put all your eggs in one basket to protect against the unforeseen.

To diversify you can start buying other businesses, property or investments such as a Retirement Annuity. The returns might not be as great as in your business, but that is not the aim for these investments.

A Retirement annuity also have a lot of tax and estate planning benefits. For a business owner it is also important to note that a retirement annuity is protected against creditors.

My business is my Retirement Plan

The big question is if you are going to receive the amount for the business according to your valuations.

The only valuation that matters is between willing buyer and willing seller. Think of what you should pay for a similar unrelated business.

Even if you can sell the business for the value that you wanted (after tax), did you ever did the calculation about how much you should need to maintain your lifestyle?

I want to leave the business to my children.

If you don’t or can’t sell the business you can always leave the business to your children.

The business risks are even more as there is new management (the children) and it need to be able to support more families. That can put more financial pressure on the business and strain on the family relationships.

Financial planning is crucial to become financially independent from your business. Then you can decide to leave your business to your children or receive a nice extra bonus when you sell the business. We have never heard a client say that they have too much for retirement.

We can do a no obligation review of your business or financial position. Let us know if you have any questions

PJ Botha CA(SA), CFP ®

Photo credit: Startup Stock Photos from Pexels

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