Most business owners have a plan to make the business part of their retirement plan. For some, leveraging this value from their business is the only ‘Plan A’ they have. This can lead to a plan that lacks flexibility, meaning you might not get the retirement you wanted.
Business Retirement Planning ServiceYou’ve worked hard to create a business that you’re proud of and turns a healthy profit. It’s only sensible to try to turn all this hard work into something you can enjoy in your retirement.
The key to successful business retirement planning is a well-thought-out exit strategy and precise objective setting.
With your intimate knowledge of your business’s financials, you’ll have your own ideas about how to exit the business. You may be planning to sell the company to a new buyer. Other common strategies include passing it to one or multiple family members, management buyout or winding the whole business down and selling off assets.
It’s here that alarm bells should start to ring. Having just one plan for exiting a business and generating money for your retirement is a dangerous proposition. Things unexpectedly change (we’re looking at you, Covid) and even the best-laid plans are prone to the effects of change.
This element of chance is exactly what you don’t want when it comes to retirement planning. Retirement is about a peaceful transition to a new period of your life. Retirement gives you the freedom to how you spend your time, whether that be with loved ones, time abroad, engagement in your lifelong hobbies or starting up fresh hobbies or adventures. A last-minute panic because some out-of-the-blue event has ruined your ‘Plan A’ is the last thing you want.
Keeping your retirement plan balanced with strategic assets, investments and savings elements is key to a relaxing lead up to retirement.
Perhaps the biggest question to be answered is, “do I still want to be involved in the business after I retire”. Options can range from retaining a full silent directorship to just keeping some non-voting shares. Of course ‘retirement’ does mean your direct involvement in the business will stop, but you can retain a financial link as part of your retirement plan.
As the business owner, you may have more than one goal you’re trying to achieve. Yes, you want to release capital for your retirement, but you may also want to see the business continue to thrive under the care of a family member or new buyer. There is wisdom in having a ‘Plan A’ and a ‘Plan B’ here too. This plan should allow for changes in strategy as time goes by. Relying on profits from the sale of a business as the sole ‘nest egg’ for your retirement doesn’t offer much scope for unplanned events.
There are also some other things you need to think about. Preparing a business for sale is a complex process. It needs skills and experience that you may not have on hand. As well as this, you need to be thinking about the most tax-efficient way to get value from the business, which may start many years before you plan on retiring.
An excellent first step is to consider personal assets, like your home and other investments, in combination with your exit planning.
There are many ways of withdrawing capital from your business, over and above the primary exit strategy. Assessing these hand in hand with your overall personal finances can help you remain tax efficient.
An overall retirement plan with clear goals and objectives, which also factors in an exit from the business, is a much more solid foundation for retirement.
Since we offer both personal financial planning and business planning services, Unividual are in a great position to provide this type of ‘joined-up’ retirement planning advice. How you remunerate yourself now can have dramatic effects on your retirement plan. There may be planned changes in tax and savings legislation that will need to be accounted for, or a way to make the business more appealing to potential investors. This can be done better with a global view of both your personal and business assets.
Starting many years in advance, a good business exit checklist can see your business really contribute to your happy retirement.
1. Strategize your exit method, maybe with multiple ‘jump out’ points.
2. Join up your personal and business financial planning, so they can be mutually beneficial.
3. Tidy up any outstanding legal issues well before you want to exit your business.
4. Make changes to the financial reporting so that the business is seen in the best light when the time comes to sell.
5. Manage customer relationships, processes, documentation and marketing efforts to make the business as desirable as possible.
6. Try to define a realistic asking price or remuneration package to feed back into your retirement plan. Be prepared to change your strategy, reverting to a ‘Plan B’ if it’s called for.
If we had to drum home one point, it’s the ‘start early’ mentality. Start planning far in advance of retirement. This lets you have a workable plan that can change and adapt while still offering you the retirement funds that give you the lifestyle you want. Retirement planning, too, is better done early. The effects of compound interest mean that early funds set aside for retirement will have significantly more impact. Why not try out our compound interest calculator?
In this finance podcast Radio Bath’s Cynthia interviews Chartered Financial Planner, Greg Harris, and Director, Cherie-Anne Baxter, on business exit and retirement planning. They cover contingency planning, different strategies for exiting a business and how this links with your planning for retirement.
So, absolutely do plan on leveraging money from your business to fund retirement, but make sure you’ve got other strings to your bow. If you understand what your dreams are for retirement Unividual can offer you all the expertise you need to create a retirement plan that works for you and builds in your business exit.
Author: Simon Jones
Editor: Cherie-Anne Baxter
Publish Date: 13/09/2021
