Are You Chancing A Comfortable Retirement?
Too many business owners just expect they’ll be able to sell their business for enough money to fund a comfortable retirement. However, with many having between 80 to 90 percent of their financial assets based in the business itself, these presumptions can scupper many owners dreams of a happy retirement.
For around two-thirds of business owners, this event is likely to occur within the next 10 to 15 years, and statistics prove that its those business owners who plan well in advance that are the ones far more likely to achieve their target price than those that don’t. Below are a few questions to consider that may help you to focus on the issues before you retire and maybe help you to think about some of the practicalities of retirement.
- Are you sure you want to retire?
- Have you set a date?
- Have you considered life away from work?
- Where are you going to live?
- Have you discussed retirement with your family?
- Can you afford to retire financially—it is wise to:
- Create an investment plan.
- Do a dry run.
- Know what your expenses will be in retirement.
Top Tip Visualize your new lifestyle, any (new) sources of income and price out revised costs. More leisure, more family time, more charitable work, “pocket money” income etc. These are just a few points to consider when planning to retire, it may seem daunting, but creating a plan now is the best way to remove uncertainty and gain peace of mind.
MovementsUK Ltd is a well-established chauffeur driven transport business based in Shepshed, Leicestershire. With 23 drivers and 15 Mercedes Benz vehicles, MD Bill Cregeen and his team look after the people transportation of some of the areas best-known companies.
During one of our initial quarterly BusinessMANAGER meetings with Bill the topic of the eventual retirement raised its head and Bill made the statement that he didn’t know when this would be possible, especially by his preferred date. This is contrary to popular belief as most business owners assume they will be able to sell their business easily when they want and for a price sufficient to funding their retirement needs. However as many business owners have come to find out this isn’t usually the case, mainly because they overvalue their business and overestimate the number of interested buyers. By identifying Bill’s goals we were able to gain him clarity.
We started by explaining how businesses are valued and then proceeded to estimate a ballpark figure Bill could expect to get for the business in its present form. With that starting point on paper we then progressed to the key planning process…
Using our retireSAFE process we ascertained Bill’s income needs both now and then in retirement. This was a case of listing out all of his living costs and private expenditures taken from his bank statements and credit cards to produce a detailed current budget. As for his requirements in retirement, we simply considered each type of expenditure and amended it accordingly. Plus we made sure we included the cost of any new costs Bill had expected in his retirement, such as family events and additional travelling.
We then put together his personal balance sheet of his private assets and liabilities to calculate his net worth including the business valuation we’d derived in step 1. From this total net worth we calculated how much passive income he could generate by investing these funds into various investments. Applying typical investment returns we could then easily compare his likely income levels to his required living costs. This then gave us a retirement wealth gap which we addressed in step 4.
Now that we knew the size of the task ahead we discussed the ways in which Bill could bridge the wealth gap which basically consisted of making more investments with the company’s surplus profits but moreover the potential to increase the value of the company. For this latter option, we utilised our business growHOW service to produce a multiple-year projection of a company’s value increase (made possible as a result of developing a business further). This valuation was fed back into the annual personal balance sheet projection to identify exactly when Bill would have sufficient wealth to fund his lifestyle in retirement.
The planning undertaken has provided Bill with the clarity of what he is aiming for and how he is going to get there. Effectively, Bill now has a clear vision in his mind rather than a vague hope all will come good in the end. If you haven’t already got a retirement plan in place for your business, contact us today.