Business owners planning poorly for retirement

Owners of small and medium-sized businesses in New Zealand are being encouraged to act now to avoid an uncertain retirement, marred by poor planning. 

Three out of four business owners are pinning their hopes on selling up to pay for their retirement, but 30 percent acknowledge that their businesses wouldn’t survive without them and even more – 47 percent – don’t have a plan in place to exit their business. 

These findings were uncovered in new research released today by Xero. It suggests the ‘she’ll be right’ attitude of Kiwis is great for getting businesses started, but more attention is needed well before they plan to retire so SME owners get what they’ve worked so hard for.

The research follows on from a report released by Xero last month about succession planning which identified a need for more rigorous planning.

The impact SMEs have on the NZ economy is significant, providing 44 percent of jobs throughout the country. According to Statistics New Zealand, 90,000 businesses are owned by Kiwis aged 55 or older, with Xero’s research finding 30 percent of small business owners aged between 55-64 would like to retire in the next two to five years. 

Craig Hudson, Xero’s New Zealand Country Manager, says of those aged 55-64 looking to retire in the next few years, 90 percent of those SME owners would like to fund their retirement by selling the business. 

“The lack of planning and forward-thinking by SME owners about the succession of their business is concerning, as many Kiwis will be impacted when these business owners decide to sell-up or exit the company. 

“The fact a third of owners haven’t even spoken to anyone regarding what happens to their business once they exit means they haven’t thought about who their potential buyers are, how much the business is worth and whether their business would survive without them. 

“Any business owner who has put in the time, money, blood, sweat and tears to build their company would want to keep it thriving, and any owner looking to retire needs to find someone competent to take over. The best way to make sure of that is to develop a succession plan,” says Hudson.

Also concerning, is that 30 percent of business owners said their business wouldn’t run without them, which means if anything happened to the owner, employees along with their families would also be affected. 

To ensure there are no surprises and to be prepared for when life throws curve-balls, it’s crucial for small businesses to be thinking and planning long-term, including knowing the value of their business.  

“Our research found 55 percent of SMEs think someone outside their family and work networks will buy their business, yet 56 percent of SMEs do not know its current value. They could be really losing out if someone offered a tempting figure that, unknown to them, didn’t match the market value,” adds Hudson.

A lot of planning is required when exiting a business, from splitting accounts to ensure no personal finances are linked to the business, to what happens to your employees post-exit. Owners also need to consider how their customers and clients will be managed and selling business assets such as property.  

Business owners don’t have to go through the process alone. Beyond your accountant, business brokers are a source of advice, particularly around how to structure your business to best position it for sale.

Business broker, and licensed real estate salesperson Gerard Dunne likened selling a business with selling his own house.

“As a seller, there are certain conversations I can’t have with a buyer, my perspective is called into question purely because I’m the owner, I’m likely to overreact to a challenge from a prospective buyer.”

“It’s exactly the same with selling your own business. Sellers recognise a good cost or an investment in getting the right buyer and the right price,” says Dunne.

The earlier SMEs can get a plan in place, the better, as business owners don’t want to be forced into making a decision due to a lack of planning. 

“By knowing what you want, you can control the conversations, outcomes and negotiations so you are able to maximise the value of your business, which you’ve spent so long to create and build,” says Hudson. 

To ensure you can spend your retirement the way you want, SMEs should consider these tips to be well prepared for the sale of your business:

1. Get an advisor on board: it is critical to talk to an accountant or bookkeeper as they’ll be an important reference point when considering your options. You don’t need to go through exiting your business alone, as they can provide you with expert advice to guide you through the entire process.
2. Get your books in order: having your books in order is a priority because prospective buyers want to know how your business is performing, where your customers and target customers come from and what products are in demand etc. With online accounting software, this is easy to manage effectively.
3. Staying or going: you may want to be involved in the business despite exiting the day-to-day running of it, so if you want to remain as an advisor, you should discuss the possibilities of remaining as a shareholder or director with your accountant or business advisor.
4. It’s more than numbers: selling a business that’s been your passion means you will have mixed emotions about selling it, so give yourself time to come to terms with leaving the business and the change to come.