7 tips to unlock your wealth strategy – for business and life

31 July 2018

Australian business owners walk a different road to retirement. Many do not have the legislated 9.5% Superannuation Guarantee Contribution (SGC) to build their own superannuation portfolio, instead their business becomes the nest egg. Their business transition defines the years leading to retirement — and the eventual health of their estate.

The lifestyles of business owners vary based on industry. Many professionals own their practice and deliver services to their clients or patients but don’t always see themselves as entrepreneurs. What business owners all share: the need to count on themselves to enhance their financial future.

Wealth strategy

To help pave the financial road to a secure retirement, business owners should consider these seven tips:

1. Know the value of your business

The enterprise forms a key part of the retirement discussion, so leaving its value to chance is not an option. To begin the process, business owners first need to know much money the business would net on the open market. Valuations professionals consider a wide range of information about the business to arrive at the company’s value. Once the value is established, valuators can work with the business owner to increase the potential sale value, and suggest ways to enhance the value of the business in the eye of a buyer.

2. Calculate your retirement budget

Like many Australians, business owners often do not know how much they spend personally on a monthly basis. Others may possess a general idea of their expenses but lack the full picture — perhaps forgetting costs paid once per year. Still others may be able to list their costs but assume these will decrease in retirement. In reality, most costs are not tied specifically to work life — leisure costs could in fact spike after Australians bid farewell to the office.

3. The insurance difference

Life insurance can be important for all Australians, but it offers further options for a business owner’s estate plan. Take, for example, a business owner with three children. The owner plans to gift the business to the oldest child, who has gradually assumed a leadership role in the business. To equalize the inheritance of the two younger children, the owner can buy a life insurance policy to provide the necessary liquidity.

4. Communicate your intentions

Discussions about wealth can test the tightest of family ties. Add a family business into the equation — and the sensitivities rise. Communication with family members is one way to manage relationships among family members. Key topics run the gamut: actions in case of sickness or sudden death, how to spend the business owner’s savings during their lifetime, even the rationale behind major items in the will. To make the most of these discussions, embrace transparency. This strategy will help ensure not only the business owner’s happiness during retirement but also the familial harmony of their loved ones for years to come.

5. Consider your Superannuation strategy

Business owners often neglect their superannuation strategy. As business owners near retirement, the decisions they made (or not made) during their working life become more prevalent. The earlier they start to implement a strategy, the better they will likely be prepared for retirement. Other considerations should also be applied, specifically, whether they will be eligible for any small business CGT retirement concessions to manage their business exit in a tax effective way whilst also boosting their superannuation retirement savings.

6. Prepare legal documents

Australians need to ensure they draft two important documents to manage their life and assets: a Will, and an Enduring Power of Attorney. As people age, they may become incapacitated and no longer be able to make critical decisions. Powers of attorney — help ensure their wishes are respected. Then, after death, the will continues to express the deceased’s intentions. Dying intestate (without a will), can be an expensive proposition.

7. Consider the tax piece

It is important not to overlook the significant role taxes play in calculating assets available during retirement and at death. The wealth plan needs to take into account how much is earned after tax, both during life and at death. The tax consequences of how assets are held (personally, in a family trust, a company or superannuation) will play a significant role in a thorough wealth plan.

A plan — the first step in wealth management

Optimism is often the secret weapon of a successful business owner. It fuels their ambitions during the lean years and their grit as the business grows. From the tech founder aiming for an exit to the physician or lawyer opening a practice to the pharmacist purchasing a pharmacy — success requires belief that everything will work out.

To manage their wealth, business owners need to channel this optimism into a plan. The future is unpredictable – only by mapping its roads can business owners safeguard their assets.

Contact us to find out how BDO’s Private Wealth team can help you manage your wealth strategy as you plan for retirement.

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