Is your business your super?

All / 05.08.2021

Is your business your super?

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.

One of our new clients, Dale, is a typical example of this expectation – he is an accountant working from his custom-built office attached to his house. 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 to plan ahead, amazingly he has failed to follow his own advice and has never documented a succession plan.

The value of a business

Dale understands the value of the loyal client list he has built up over 20 years. Those clients will continue to need good accounting advice in the future, and their fees will provide an ongoing income stream to the business that services those needs. If Dale can transfer his clients’ loyalty to another accountant, then it represents an asset he can sell.

To plan his succession, Dale could explore a few options. He could employ a junior accountant 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 established accounting firm and continue to work with his clients as he transfers their loyalty to the new owner.

What about tax?

Any sale proceeds Dale 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 us sooner rather than later. Then you can get back to running your business knowing your ‘superannuation’ is being well managed.

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6626 3000.

Disclaimer
Past performance is not a reliable indicator of future performance. The information and any advice in this publication does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. This article may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be reliable but has not been independently verified. It is important that your personal circumstances are taken into account before making any financial decision and we recommend you seek detailed and specific advice from a suitably qualified adviser before acting on any information or advice in this publication. Any taxation position described in this publication is general and should only be used as a guide. It does not constitute tax advice and is based on current laws and our interpretation. You should consult a registered tax agent for specific tax advice on your circumstances.