For many small business owners, the business itself can feel like the retirement plan.
Years are spent building something valuable, managing cash flow, investing in growth and keeping employees, suppliers and customers happy. Personal superannuation contributions can easily fall further down the priority list.
But with almost three million Australians expected to retire over the next decade, retirement planning is becoming an increasingly important conversation — particularly for people who work for themselves.
The small business super gap
Unlike employees who generally receive compulsory superannuation contributions from their employer, self-employed business owners often need to take responsibility for making their own contributions.
And when cash flow is tight, there is always something competing for that money.
New equipment. Staff wages. Stock. Marketing. Rent. Tax obligations. Paying down debt. Investing in the next stage of growth.
It means super can become something to deal with “later”.
Research from AMP highlights the impact this can have on retirement confidence. Its annual retirement confidence survey found that only 55% of self-employed Australians and business owners feel financially confident about retirement.
For business owners in their 40s, confidence falls even further to 46%.
Women appear particularly vulnerable, with only 35% of women in their 40s reporting confidence about their retirement position.
When your business becomes your retirement strategy
There can also be a tendency for business owners to assume the value of their business will eventually fund retirement.
The plan might be to sell the business, bring in a successor, sell assets or simply continue drawing an income for as long as possible.
But relying heavily on the future value of a business can introduce uncertainty.
Market conditions change. Industries evolve. Buyers may value the business differently than expected. A business that provides a healthy income today may not necessarily produce the lump sum an owner expects when it comes time to exit.
Building personal wealth alongside business wealth can therefore become an important part of longer-term planning.
Cash flow makes the conversation difficult
Of course, knowing super is important and having the available cash to contribute to it are two very different things.
Small business owners frequently prioritise the needs of their business ahead of themselves. Some pay themselves less during difficult periods, while others reinvest profits to support growth.
That can make regular super contributions difficult — particularly during the early years of a business.
But as a business becomes more established, it may be worth revisiting whether superannuation can become a more deliberate part of its financial planning.
Rather than waiting until retirement is approaching, business owners can consider how business profitability, personal income, superannuation, investments and an eventual exit strategy work together.
What does retirement actually look like?
One of the challenges is knowing how much will actually be needed.
Retirement targets are useful, but everyone's circumstances are different. Housing, debt, lifestyle expectations, health costs, travel plans, other investments and the age at which someone wants to stop working can all significantly change the equation.
For a business owner, there are additional questions.
What is the business realistically worth? Could it operate without you? Is there a succession plan? Would you sell it, retain ownership or gradually step away? And importantly, how much of your future financial security currently depends on that business?
These questions can be just as important as the balance showing in your super account.
Your business deserves a plan. So does your retirement.
Running a business naturally encourages you to focus on what needs attention today.
But there comes a point where it is worth looking beyond the next BAS, payroll run or financial year and considering what the business is ultimately helping you build.
That may mean reviewing how much you are paying yourself, whether you are making appropriate super contributions, how your business fits into your broader wealth strategy and what an eventual exit could look like.
The aim isn't necessarily to take money away from a growing business. It's to find a sustainable balance between building the business and building financial security for the person behind it.
If superannuation has taken a back seat while you've concentrated on growing your business, it may be worth making it part of your next financial conversation.
At Innovate Services, we can help you look at the bigger financial picture — from business cash flow and tax planning through to the decisions that can help you prepare for the future. Speak with our team about incorporating your longer-term goals into your business and financial planning.
This information is general in nature and does not take into account your individual objectives, financial situation or needs. Consider seeking appropriate professional advice before making financial or superannuation decisions.
SOURCES: Smart Company