Many years ago when the idea of running a small business was first mooted to me someone tried to explain to me what the experience of a small business owner was. They described the starting, running, growing and exiting of their business as a bit like raising a teenage child.
A small business is like a teenager in two ways. Firstly, you will always love it but you will not always like it and secondly it always seems to have its hand out for money. Never is the second example truer as just as you think you have a bit of cash to start the retirement funding process than something comes along that takes it all off you.
When someone first starts up their own business they will maybe have the expectation of sitting on a sandy beach at age 55 with the boat anchored a few hundred yards off shore. The reality, for the majority, is that if no plans are made this dream can be a million miles off with many still working on the business well into their 60s and 70s.
Many business owners are failing to fund any kind of retirement plan either because the business never achieves the financial critical mass necessary for the owner to provide the income to fund a plan, or they convince themselves that the business will provide for them in retirement, or they just never get around to budgeting for a retirement contribution.
Many people devote so much time and money to their businesses that they have failed to plan for retirement, or as the point above states they believe that the business will be their retirement plan. However, as the world has experienced what if there is a downturn in the economy just as you feel you need to retire and there is no succession plan in place or potential buyer. Therefore the prospect of continuing to work well into your ‘perceived’ retirement is a distinct possibility. And although this may not be seen as bad news for some people, there is always a point where one has to stop working.
The idea to gradually reduce your working hours as you get older is also a favourite of many, but again without a succession plan the ability to do this may also be eroded. Meaning that the dreams of the island in the sun become more and more distant eventually leading to resentment of the company you have built up and loved.
Catch up plans for these owners usually consist of aggressively putting money aside, or taking this big risk of selling the company to fund their retirement.
Many business owners are worried about their ability to save for a lifestyle they want in retirement. The recession made saving more difficult, if not impossible, for many owners. The downturn, and the plunge in lending to small businesses, during the past five years forced many owners not only to put saving on hold, but also to use personal assets like bank accounts and savings to keep their companies running.
Saving for retirement often takes a backseat to building a company for many owners in good times or bad. Many don’t want spare money that could be used for research and development, recruitment or purchases of equipment or property. Young owners are even less likely to be saving for retirement.
There is the argument that small business owners should be making their personal finances as much of a priority as their companies finances because if the company goes under the owner can be left with nothing.
Having something in place for your retirement also helps to alleviate some of the pressure if the decision is to sell at the end of the day. It will give you some breathing space in order to find the right buyer of help the new blood come through enabling you to gradually reduce your hours until you have left for good.
There are many ways to help fund for retirement but the most popular is saving into a pension and here the Government provides a generous tax break for contributions made by the company into a pension plan. Benefits can be taken at any time from age 55 in a variety of ways including utilising annuity and income drawdown plans. Speak to a financial adviser for more information.
You work hard on the business in order to bring rewards and to profit from a sale in order that you have a comfortable time in retirement. If you invest sensibly, the hard work you put into your business and the planning you did will be of benefit to you in retirement just as, hopefully, the hard work you put into your children will be as they finally emerge from their teenage years.