2 all-important later-life questions every business owner should ask themselves

If you are a business owner of any age, you will understand the occasional pressures that come with running a successful enterprise day-to-day. The everyday happenings of your company may even eclipse your long-term vision at times, occasionally causing you to lose track of your plans for the future of your business.

Indeed, while being attuned to the finer details is essential, it’s important not to forget about your long-term personal and corporate goals. These include your retirement and, crucially, the eventual passing of the reins to another leader.

If you sometimes get lost in the everyday noise and forget to look up at the horizon, don’t worry – we’re here to help. Retirement and succession planning as a business owner can be an overwhelming thought, but with professional guidance at hand, you can make efficient plans that suit your long-term goals.

Here are two all-important later-life questions that all business owners should ask themselves sooner rather than later.

1. What will happen to my business when I retire or pass away?

The question of what will happen to your business after you pass away or retire is one you may have thought about many times. Without concrete plans in place, though, your business could be placed in a precarious position.

There are usually two routes business owners can take when they stop working or pass away, aside from closing down altogether: the business can be passed down to the next generation, or sold to an outside buyer. Deciding which of these routes you are set to take before you reach retirement age could be extremely constructive, because each one requires a specific type of financial planning that can take years to complete.

Let’s take a look at these routes in more detail, and how business owners can prepare for them.

Selling your business

If you plan to sell your business when you retire, preparing for this eventuality early is paramount. At least a decade in advance of a sale, you could start thinking about:

• The kind of price you might expect to sell your business for
• How competitive the seller’s market could be
• The type of buyer you’d like to find for your business
• How to start preparing your company for a sale, such as informing key staff and shareholders, paying debts, and planning for a smooth transition.

It’s important to put as many of these plans into writing now. Otherwise, if you were to pass away suddenly, your beneficiaries may be left in the dark about your wishes for the company’s future.

Passing your business to the next generation

If you’re set to pass your business on to the next generation – your child, grandchild, niece or nephew – putting succession plans in place is of the utmost importance.

As you approach retirement age, consider:

• Discussing who you would like to take over the company, and why, with trusted friends and advisers
• Informing your intended successor as early as possible, giving them the option to say “no” if they wish
• Preparing your successor to take over the running of your company, so they feel entirely ready to assume this responsibility when the day of your retirement arrives.

It could also be extremely constructive to write out a business succession plan now, in case you were to pass away or become too ill or injured to work. This way, your successor can take over your role seamlessly, and your business may continue to thrive even after you’re no longer involved.

2. Do I have enough personal wealth to sustain my later-life plans?

As a business owner approaching retirement, your plans may be focused almost entirely on the future of your company.

While taking the steps mentioned above is crucial to ensure your business’s longevity after you retire or pass away, there is another side to this coin: making sure your personal wealth plans are in order, too.

Your personal and corporate wealth may be attached by many different threads, but the bottom line is that relying on a successful business sale for your retirement fund, and your children’s financial stability too, could be a risky move.

That’s why, before you retire, it’s important to begin building your personal wealth alongside the capital you hold in your company. You can do this by:

• Paying yourself a salary, drawing or dividends
• Making pension contributions, and/or contributing further as an employer
• Nurturing a long-term investment portfolio
• Repaying your mortgage and other debts.

Seeing yourself as an employee, not just an employer, means that if your business were to go through a difficult time – or even fail – you have a foundation of personal wealth to fall back on.

What’s more, putting plans in place for your personal wealth now, rather than later, can help your family prepare for the unexpected. Here, it may be wise to:

• Write and update a will that includes, but is not limited to, your business assets
• Speak with a Financial Planner about mitigating any Inheritance Tax (IHT) where possible
• Consider protecting your wealth with an appropriate package of protection, including life insurance and critical illness cover
• Pay down any debts as quickly as possible.

This way, no matter what happens with your business, you may still be able to give plenty of wealth to the next generation when you pass away.

Plus, when you retire, you could live more comfortably, even without income from the business to support you in your later years.

Get in touch

We can help business owners like you formulate a long-term financial plan. Email us at enquiries@pen-life.co.uk, or call 01904 661140.

Please note

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

All contents are based on our understanding of HMRC legislation, which is subject to change. The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.

Note that life insurance plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.

All information is correct at the time of writing and is subject to change in the future.