Many business owners believe their business is their retirement. They invest all extra profits into the business with the intention of selling it somewhere in the future and retiring afterwards. Other business owners don’t plan to retire at all and want to keep working. Whichever category you fall into, says Kobus Engelbrecht, Marketing Head: Sanlam Business Market, you’re exposing yourself to risk.
The reality, unfortunately, is that if you don’t make specific provision for your retirement, there will be none.
‘In both scenarios outlined above, you’re basing your retirement on the wrong assumptions.’
If you plan to sell your business to fund your retirement, you need to keep in mind that there are no guarantees:
• Your business may for various reasons not be sellable when you’re ready to sell it in order to retire.
• The value of the business may not be enough for you to retire. ‘The value of a business isn’t what you think it is, but rather what somebody is willing to pay for it,’ Kobus cautions.
If you opt to continue working in your business, you’re taking an unrealistic approach:
• It may be unrealistic to expect to work in your business for life. ‘You can reach a point where you can’t work any more due to illness or frailty, and then selling is the only option.’
• Also, in cases where a business owner plays such a vital role in the business that it can’t exist without him or her, it becomes unsellable.
So what can you do?
• Your business is probably your biggest asset, so you must ensure it is sellable.
• Take out portions of the profits and invest them somewhere else. ‘If all the eggs are in one basket and the basket drops, all the eggs are broken,’ Kobus says. Build assets outside the business over a long period of time.
If you’re one of those business owners who realise you have to make special provision and not rely on your business for retirement, you’re already ahead of the curve. However, Kobus warns, resist the urge to go it alone or asking advice from friends. Speak to a qualified financial planner to make sure you make an informed decision and choose an option that addresses your particular needs.
Insurers like Sanlam offer various options, but Kobus says a retirement annuity is probably one of the most beneficial retirement options for any business owner – not least given the numerous tax advantages.
RAs also enable business owners to spread investments across a range of different asset classes to benefit from their various advantages. RAs are also not part of your estate, so they’re protected against your creditors.
‘An RA is, to my mind, a critically beneficial retirement savings option. Any business owner and qualified financial planner should put this at the very top of their planning list,’ Kobus says.
For any enquiries about the Sanlam SME value Proposition, contact Ginsburg Financial Services