Selling business unreliable for retirement
AUCKLAND: Many business owners who plan to cash up to fund their retirement are setting themselves up for disaster, an expert in business sales is warning.
Bruce McGechan, an entrepreneur and business exit planning expert, says four out of five small to mediumsized businesses don’t sell, leaving many who have their wealth tied up in the business struggling to fund their golden years.
‘‘I’ve seen people shocked, disappointed, and [facing] absolute worry. Not just them but their spouse, watching the plans they had fall apart.’’
The size of the problem has prompted Mr McGechan to write a book about it in a bid to raise awareness of the issue which he said was not just a New Zealand one but also found in Australia and the United States.
‘‘When you have four out of five businesses having something wrong with them in the eyes of investors such that they either won’t sell, or get what seems to be distressed sale prices, you go ‘There is something wrong here’.’’
Mr McGechan said one of the biggest issues was lack of transferability.
‘‘A business will be run by the business owner, the business is reliant on that owner. If the owner gets hit by the proverbial bus, then the business could well fall apart.’’
Mr McGechan said for many who owned a business it was purely about providing a job or a lifestyle for themselves and their family.
He said lifestyle business owners should save for retirement like salary earners, putting money aside regularly.
While there was no official definition of a lifestyle business Mr McGechan classified any business that had earnings before interest, tax, depreciation and amortisation below $1 million as mainly a lifestyle business.
Mr McGechan said making a business independent of its owner meant the owner should be working on the business not in it.
‘‘They need to have good managers in place, good procedures and processes.’’
The other side of the process is business owners seeing a financial adviser to work out what kind of income in retirement they want and how much they need to sell their business for to pay for it. — The New Zealand Herald