I think it's fair to say that most people would prefer to retire sooner than later. Whether you intend to retire at a certain age or not, wouldn't it be better to at least have the choice? Usually, this will depend on whether your business valuation is high enough so when it is sold it can help fund your retirement.
So what do you need to do to work out when you theoretically could retire? Well here are some steps for you to consider and implement if you haven't done so already.
Figure 1: What sort of boat will you retire on?
1. Establish how much money you will need to retire on
This may seem a little bit far fetched but it's never a bad thing to have your end game in mind now and how and when you like to retire and how much you would need to fund this retirement lifestyle.
As small business accountants we find this is a good exercise to go through with clients and it can certainly change their mind about how they would like to run their business and how big or small they would like it to be.
2. determine whether the sale proceeds of your business is needed
It is possible that once you've worked out how much you need to retire on that the sale proceeds of your business maybe a bonus and not required. This would be rare in many cases though. Naturally, you need to do some scenarios about at what stage of your life you would like to retire.
Do this calculation if you were to finish up at 50 years old, 55, 60 or 65. If you are young and you want to do the calculation at 40 years old, great!
Once you have worked out how much you need and whether you will need your business to be at a certain level, move onto Step 3.
Figure 2: Failure to plan your retirement could see your partner less than happy when they find out you can't!
3. establish your current business valuation
Get your small business accountant or find business valuers Sydney to work at your approximate business valuation. Insert this figure in Step 2 to work out whether there is a shortfall or business gap.
If there is a business gap then you will have to decide to:
- Have a business plan to improve its valuation; or
- Retire later; or
- Not retire at all because you can't afford to!
Figure 3: Looking across Dubbo's 27 Hole Championship Course. Playing more golf is a common goal for small business owners in retirement.
4. allow for taxation and inflation
Most small business accountants Sydney will be able to assist you with any tax issues as part of your overall plan as naturally there will be some income tax and capital gains tax considerations that need to be made. How much will you need in superannuation, can you access the small business rollover concessions etc etc?
Allow for inflation as this will also affect the timing and your retirement requirements.
A good small business accountant will have the necessary tools at their disposal to help you with these estimates.
5. have a business improvement plan with your accountant
Once you have completed the above 4 steps, you now are in a position to set out a plan for your financial life and its retirement options.
Of course things can change along the way but at least you will be able to adjust your plan up or down as time goes on and keep you on track. Have a business by design and not by default. Ensure your business plan fits into your overall life plan. Consider using 3 way budgets incorporating cash flow forecasts as part of any goal.
Work with your small business accountants and business advisors to not only help you establish the plan but monitor it regularly.
Understand what areas you need to improve that makes business valuations Sydney higher and easier to sell.
Don't be frightened to sit down and work out a 'what-if' plan and time frame to retire. Even if you never want to stop working, it should make you aware of what you need to do, if you want to make that event happen.
Improving your business now, will bring forward your retirement options as not only will you have a more valuable business but also a more profitable one.
It's always better to have retirement options available to you than no retirement options at all!