

As a small business owner, you can get caught up in the short-term plans, growing your business, managing cashflow and dealing with the day to day of your business.
However, have you ever thought about planning for the future? Before you know it, there won’t be much time left to plan and give yourself the option of winding down or taking it easy.
Pension planning and retirement planning are two important factors as a small business owner. Although they are interchangeable pension planning and retirement planning are two different things.
Pension planning
A pension is a type of savings plan you pay into during your working life. You can draw on your pension when you retire. There are a number of different types of pension plans including:
State pension – provided by the government and funded by national insurance contributions.
Private pensions – These fall into different categories and it’s worth speaking to a financial advisor to understand which private pension could be right for your circumstances.
Retirement Planning
Retirement planning is another way to fund your retirement income. This can be a combination of:
- Cash savings
- Investments, including ISAs
- Property Income
- Pensions
- Inheritance
Retirement planning can include your business. Planning for the future could mean:
- Closing the business down
- Passing the business to family
- Outright sale to new owners
- Management Buy Out
- Retaining a smaller role
Closing the business when you’re ready to retire might be an option for you. This will depend on whether other people are involved with running and owning the business. It will also depend on whether the business is solvent or insolvent.
You may have a family member that’s interested in taking over your business and therefore would like to take control someday. It’s important to conduct discussions early and make sure these discussions happen at the business premises, rather than at home.
Passing the business over to family can also allow to take a smaller role within the business, giving you the freedom to semi retire. If this is an option for you it’s best to seek advice on any tax implications this could have on the business and yourself.
There are lots of options for selling your business outright. It’s good to have a think about whether selling your business would be beneficial to your retirement planning. Points to consider when thinking of selling would be your industry, turnover, profit margins, economy at time of selling etc. These points will all factor if you’re planning to include profits from the sale of your business in your retirement planning.
How can you fund your retirement:
Property income (rental or sale of a property) –
Buy to let property continue to be popular investment vehicles for retirement planning. Rental yield can vary widely depending on the location of the property. Healthy income can be achieved through property investment. However, it needs to be researched, planned and approached in a business-like manner. Waiting until you’re ready to retire is not the best option.
You should research and seek advice for any type of investment but when considering property, you need to be aware of tax implications, legal obligations and landlord regulations.
Downsizing your home and buying one for a lower value can help to fund your retirement. Living in a smaller home can also mean that your monthly bills are lower.
Pension
There are several types of pensions schemes out there and paying into a pension scheme is a tax efficient way to save during your working life.
Other savings income
Options like cash ISAs, fixed rate accounts and regular savings accounts offer secure interest rates. While potential returns may be lower than stock market investments, your capital isn’t at risk.
Living on profits from the sale of your business
Selling a business can be very complicated but depending on your needs you may structure the deal to receive an immediate payment or receive the proceeds over a number of years. A staggered buyout is common where the purchaser will be using the future profits of the business to buy out the previous owner. Whichever option you choose will depend on a number of factors but you need to be clear in your own mind which option would work better for your retirement and factor this into your negotiations.
Income from retained interest in business
This could either be in the form of slowly extracting cash from the retained profits of a dormant Ltd company to maximise annual income allowances or, remaining as a sleeping partner in a continuing business and getting an annual return for your continued investment in the business. This is common where a business has passed down through family and the younger generations have taken over the main running of the business.
If you’ve not thought about planning for the future and what your business could potentially mean to your future planning, give us a call today. We can help with pension planning and the tax implications on selling, transferring or winding down your business.