Many self-employed people view the sale of their business as their retirement fund – their superannuation. So just like ensuring superannuation investments are being well managed, business owners need to plan ahead, to ensure their business can continue to provide a reliable income after they retire.
Take for example John. He is a typical example of this expectation – he is a GP working from his surgery in an inner-city location. He wants to retire in a few years and has always assumed that he can sell his business and retire on the proceeds. Although he advises his clients ‘prevention is better than cure ‘, amazingly he has failed to follow his own advice and has never really developed a succession plan.
The value of a business
John understands the value of the loyal client base he has built up over 20 years. Those clients will continue to need a good family doctor into the future and their loyalty will provide an ongoing income stream to the business that services those needs. If John can transfer his clients’ loyalty to another doctor, then it represents an asset he can sell.
To plan his succession, John could explore a few options. He could employ a junior GP to train up with a view to having him or her buy his business. Or he might be able to sell the business to an already established physician and continue to work with his clients as he transfers their loyalty to the new owner.
What about tax?
Any sale proceeds John receives will be treated as a capital gain, which would normally be subject to tax. However, a number of concessions are available to small business people, particularly when it comes to retirement. These concessions are designed to reduce or eliminate any capital gains tax payable on the proceeds of the sale of the business.
Relinquishing control can bring rewards
Business succession confronts many small business operators. It’s not a case of one size fits all. The specifics of the succession plan will vary from business to business, and it may present a significant challenge for independently-minded owners. After all, it means progressively giving up control and letting go of the day-to-day running of something they have created personally. It’s sometimes a good idea to engage a business consultant to help design and guide the succession strategy.
Will your business fund your retirement?
For many people, converting a business into an asset that can be sold for a six or seven figure sum could be the most profitable use of their time between now and their ultimate retirement.
If you’re a small business owner, ask yourself, what does your retirement fund look like? If you don’t have an answer, talk to Intrinsic Asset Management sooner rather than later. Then you can get back to running your business knowing your ‘superannuation’ is being well managed.
Intrinsic Private Wealth specialise in providing financial advice to Australian investors. With over 20 years of experience in the finance & investment industry.
General Advice Disclaimer: Information is of a general nature only and has been provided without taking account of your objectives, financial situation or needs. Because of this, you should consider whether the information is appropriate in light of your particular objectives, financial situation and needs. Intrinsic Private Wealth has financial advisers that are authorised to provide personal financial advice. Call 02 9615 4500 for more information on our available services.