As a business owner, retiring successfully requires a solid retirement plan and a well-considered exit strategy. However, whether it’s through a failure to properly plan or by not taking financial advice early enough, many business owners are left in a tricky position when they finally decide to hang up their boots.

From our experience, there are common behaviours that many business owners exhibit. So, here are four strategies that could help you to enjoy a more fulfilling retirement.

• Keep personal and business finances separate

Many business owners keep their personal finances inextricably linked to their business. However, if possible, it can be better for you to take money out of your business as soon as possible and use this to build up your retirement savings.

The most successful business owners are often those who have been putting money aside for many years and who have built up significant personal assets. This might include pension savings, investments and property.

It may not be easy, particularly as you are growing your business, but if you can plan your budget and cashflow to enable you to keep your personal finances separate then this can benefit you.

• Make the most of pension benefits

Taking money out of your business to enable you to save into a pension has multiple benefits, most notably the significant tax advantages.

As you benefit from tax relief at your marginal rate, pensions are an extremely tax-efficient way to save for your retirement. Other benefits include:

• If you own a limited company, any pension contributions that you make can be treated as an allowable business expense, helping offset your company’s Corporation Tax bill
• Pension contributions can be a tax-efficient way to take money from your business

• If you plan to sell your business to help fund your retirement, making the most of pension allowances is wise because they can help reduce Capital Gains Tax when your company is sold.

In addition, the sooner you start making pension contributions, the better. You’ll have a longer period for your savings to grow, plus you’ll benefit from the compound returns over a long period.

• Don’t forget other investments

As well as maximising your pension contributions, business owners are often also advised to put any other surplus cash they have in their business into an investment portfolio. Here, the aim is that this portfolio will yield returns over the long term, enabling a business owner’s money to work hard for them until they need it in later life.

With a wide choice of investments available, they can be tailored to an individual’s risk profile. Many of our clients consider multi-fund or multi-asset strategies while entrepreneurs who understand risk may be drawn to Venture Capital Trusts.

For all business owners, a key short-term incentive for investing could simply be the potential tax disadvantages of leaving money sitting in the business.

We live in a low tax environment at the moment, and so not taking the money out of the business could actually cost business owners more in tax if we have a change of government.

• Plan ahead and review

One common assumption that business owners make is that selling their company will eventually provide them with all the money they need in their retirement.

For example, will your business still be profitable in 20 years’ time? Will your products or services be obsolete by then, or will other companies have gained a competitive advantage?

In addition, many business owners also fail to consider that tax and legislation could change before they come to sell up. For example, recent speculation surrounding Entrepreneurs’ Relief could mean that this valuable Capital Gains Tax break may no longer be available – at least not at the same level – in the future.

For reasons such as these, it’s vital that business owners continue to plan and review their arrangements regularly. We sit down with business owners and look at how many years their pensions or investments are going to last them. Often, and with rising life expectancy rates, even substantial pension pots may not be sufficient for clients to maintain their desired lifestyle into retirement.

In addition, having a plan for your retirement is crucial. This isn’t just an exit strategy for your business, but a plan concerning what you intend to do in your retirement. Are you planning to keep working? What are you likely to spend your time doing when you retire?

Only by considering (and regularly reviewing) your plan can you know how much you’ll need for your retirement, and whether you’re on track.

Get in touch

If you own your business, getting good advice is key.

We can help you to build the retirement you want. Even if your intended retirement is years away, it’s never too soon to start making plans. Email info@henwoodcourt.co.uk or call 0121 313 1370.

Please note

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 and you may not get back the full amount you invested. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.