Are you one of the many business owners who are ignoring superannuation in preference for re-investing spare funds in your business, hoping you can then sell at a premium when it comes time to retire?
At some magical time in the future, do you dream of selling your business for your asking price, turning the lights off, and walking away? Sounds perfect, doesn’t it?
As the uncertainty of recent years has demonstrated, in reality, this may be embarking on a very risky exit strategy. It might be that when you do decide to sell, you struggle to find a buyer. Or you find a buyer, but the buyer does not want to pay the price you may be hoping for.
This is even harder if you own a farming business. The idea of passing the farm on to your offspring can be deeply embedded within farming families, but if that happens, how do you then fund your retirement?
As with anything, if you fail to plan, you plan to fail.
Your first step must be to contact your accountant or business adviser to determine what they think of your business, its potential value as it stands, and what, if anything, you can do to improve its value to a new owner.
While you might think your business is in good shape, an outsider may not. For example, you may not be using state-of-the-art accounting and software systems or have a clearly documented operations manual. As a result, it may take several years to get your business to a place where an outside buyer would find it attractive. And then, of course, you should have several years not just of steady profits but steady growth to entice a prospective buyer.
A realistic, independent assessment of what a buyer may pay for your business should be undertaken. With all the hard work you put into running your business, it can be easy to overestimate its value, and this is where independent outside advice is essential.
If there is a risk that you might not get the price you think you need to fund a long and happy retirement, then maybe you should think outside the square:
- Can you make a strategic acquisition that might make your business more attractive to a buyer?
- Can you take on a junior partner or look within your existing business to determine if someone already working in it might like to take over from you in the future? Can you help them achieve that goal?
Finally, consider boosting your existing contributions to super. The more money you have in super, the less pressure there will be for you to obtain top dollar for your business when you sell.
Moreover, you can structure your superannuation contributions to legally minimise any tax liabilities. And, of course, you may be able to use superannuation to reduce any capital gains tax liabilities you might expect on the sale of your business.
Having a healthy nest egg within super will also put you in a much stronger position when negotiating the sale of your business and may give you some much-needed breathing space to negotiate extended payment terms should you need to.
Contact us to help you understand how we can help you reduce the risks of relying on selling your business as your only income in retirement.
