‘My business is my pension’. Does that really stack up?
The phrase ‘my business is my pension’ has been quoted by many small business owners and directors. But is this really a sensible strategy when it comes to planning for your retirement?
For some really focused and/or lucky owners, this could feasibly work out. They might work for 10 or 20 years or more, and then sell their share of the business at just the right time, getting the right price to ensure they have a happy and secure retirement. But there are many reasons why it might not work out that way.
For example, you may not be able to find a buyer at the point you want to sell, and even if you do, you may not realise the price you thought you would for your business. This could leave you with no retirement income or less than you had hoped for. This would mean you might have to start the process again and set up another business. Or you might need to work for an extra five or 10 years until your current business reaches the value you need for it to provide you with an adequate retirement income.
Planning ahead is always difficult at the best of times. As Niels Bohr, the leading physicist, once said 'prediction is difficult, especially about the future'. So who knows what your business will be worth in 10-20 years' time? Relying on having a viable business to sell 10 or 20 years down the line is therefore an uncertain and/or risky strategy - so not a good basis for planning for a comfortable retirement.
The problem for many is, planning takes time and time is a precious resource as you work round the clock to try to build and grow your business. The reality is that many owners and directors haven't thought about retirement planning and their exit from the business purely because they are too busy managing it day-to-day, amongst other things seeking to ensure that they will actually have a business to exit from.
It's a common problem, but it really is vital that you do take time out to do some financial planning, looking at what you are trying to achieve, and what actions you need to take to help you along the way. These things don't just happen by themselves. It is your business, it should be your money, so make sure you take control of them both.
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, your business could well be part of your pension equation, but it would be foolhardy to rely on it solely, particularly if you have a further 10-20 years to work.
For help with your retirement and corporate financial planning needs, contact Kellands Corporate today.