As an SME owner, do you have an exit plan so you can retire comfortably?
Many SME business owners believe that their business is their pension. Yet research shows that 62% of them don’t know how they will exit their business.
The Future Attitudes research report by Aldermore showed that the most common departure method for business owners was liquidation (29%), followed by handing the reins to other senior colleagues (25%) or family members (23%). For many, this is probably not the high-return exit that they were planning.
The report also showed that 45% of SME business owners believed that senior staff leaving was the biggest threat to their business, yet 64% had no clear plan in place to ensure that their business did not suffer when key staff leave.
Many SME owners have started their business from scratch and have invested years of effort growing it, possibly with the intention of it being their 'pension'. However, this makes them financially dependent on their business.
The reality is that most business owners spend most of their time thinking about their business; how to grow it, how to hire top talent, how to manage cash flow and how to protect it from external threats and even IP theft. They have little time to think about life after an exit.
Another reality to bear in mind is that despite all the best intentions and efforts of the owners, 4 in 10 businesses don't make it till their 5th birthday, according to the Enterprise Research Centre.
Starting and running your own business is high risk and can be high reward. However, basing your retirement plans and nest egg around your business means exposing yourself to a great number of variables.
For example, if your family business is your pension, how are you going to use this to fund your retirement? Are you going to sell the business, or ask your children to run the business so you can continue to be paid an income in retirement?
When you look to exit your business, you can either sell it or plan for succession. Either way, you need to ensure that the business can run without you. So even if your company is only a few years old, it's never too early to start thinking about how to build a business that lasts, with or without you. You should also do some serious planning so that you have a robust financial plan for your retirement. Planning ahead is crucial to ensure you get the maximum value out of any business handover or exit strategy.
As corporate financial planning specialists, we work with owners and directors of SMEs, helping them to plan their financial futures. Part of this process is ensuring that your company objectives are not met at the expense of your personal objectives. We can work with you to ensure that you extract money from the company in a way that is tax-efficient for the business now, but that also protects your personal interests in the longer term, including planning for your retirement.
As well as retirement planning, you also need to ensure that your company has measures in place to protect your family as well as your fellow directors in the event of something happening to you. This could be in the event of your death or if you are unable to work for any reason. A bit of forward planning can ensure business continuity going forward, through keyperson assurance, share protection and income protection arrangements.
In summary, it makes sense to find time to do some financial planning as early as possible, both because your business could well be part of your pension equation, and because you need a strategy for succession planning and an exit route.
For help with your retirement and corporate financial planning needs, contact Kellands Corporate today.