Is Retirement a Mirage?
Information to come out of the MGI Australian Family and Private Business Survey of 2013 reveals a reality check for our baby boomers heading towards retirement. If your dream and planned retirement is living the good life, playing lots of golf, days by the beach, travelling overseas and having plenty of time and resources to visit your children and grandchildren, perhaps you need to check to see if these plans are realistic.
The results of this survey reveal that 33% of business owner-managers are relying either on the sale of their business or continuing family ownership as the source of funding for retirement. This being the case there are a couple of questions here that need answers. When we are selling our businesses, at what value are we selling? Since the start of the global financial crisis (GFC) in 2008 the values realised at sale have generally declined on values realised prior to the GFC. In addition to this there are more and more businesses hitting the market every day. The laws of supply and demand dictate that unless there is a corresponding increase in demand, sale values will decline. Is generation Y rushing to take up the challenge by buying these businesses? In my experience no. Therefore it is only the good businesses that are well managed and represent true value that will sell at attractive prices. If family members are taking over the business are they going to be willing to pay an ongoing income to the current owners to fund their retirement? The answers here will vary on a case by case basis.
The second piece of information to come out of this survey is that 58% of family business owner-managers see themselves working in the business beyond 65 years of age. Some of these people will choose this option because they don’t want to retire, but many others will be driven by necessity. There goes the long lazy days in the sun relaxing with friends!
If we do choose to continue to run our businesses into older age are we going to have the energy and commitment to maintain or continue to build its value? If not then the value may decline and along with it the level of our income from that business.
What then is the answer? Are we all doomed to declining business values and a poor retirement? Thankfully the answer is no, but we do need to act now. If your plan is to retire, slow down, or sell or transition your business within the next five years then you need to start planning now. Selling your business takes a lot more than simply listing it for sale. In many cases work will need to be done to enhance its value and then we need to achieve a strategic sale rather than a fire sale value. Do yourself a favour and engage a professional succession adviser to help you achieve these things.