As a result of the new rule, Rogers believes SME owners are likely to take advantage of three key investment areas – commercial property, investment property, and those who’ll take advantage of warrants to invest in shares or managed funds.
While the new ‘gearing’ rules provide exciting opportunities for business owners, Rogers cautions against acting without advice.
“The usual rules apply with regard to showing care when choosing assets within a fund, and it is now very important that any warrant holding structures are set up correctly,” he says. “What we are offering at NAB Financial Planning is specially structured products and tailored super fund advice so that people don’t get caught out by the very complex rules that surround self-managed funds.”
Traditionally, many SME owners rely on the future sale of their business as a source of retirement funds. Research by RSM Bird Cameron found four out of 10 SME owners had no source of retirement funding beyond their business assets. Certainly, super’s tax-friendly environment can make it the ideal venue for the proceeds of a business sale. SME operators who have owned the business for 15 years or more may be able to can contribute up to $1 million in sale proceeds into super as an after-tax contribution. However, Rogers cautions that the rules are complex and it is important for business owners to seek financial planning and accounting assistance.
“If the sale of the business is properly structured, business owners can get a lot of the proceeds into superannuation as well as minimising capital gains tax (CGT) obligations.” After all, “It isn’t it a great feeling to sell an asset and hand a lot of it back to the Tax Office,” he says. “Proper planning can control this”.
On the downside, relying solely on the sale of a business to fund retirement can be fraught with peril – bringing with it the risks of ‘putting all your eggs in one basket’. NAB Succession Services General Manager Wayne Rees cautions: “Business and economic conditions can change over a 30-year time horizon. If something happens to affect the value of the business, you’re back at square one.”
NAB’s Head of Succession Services Keith Selikman agrees, saying the risk may be amplified where an SME owner is the key person in a business.
“If something happens to this person, such as a health scare, it can have a tremendous impact on the value of the business,” he says. “The risk of this increases as one gets older, but it can happen at any time, and if all one’s wealth is tied up in the business it can have an unexpected and negative outcome.”
Rogers adds that a business that is heavily dependent on a key person can find its value significantly diminished if the person leaves.
“They need very different strategies from, say, a business owning a manufacturing plant, where a substantial part of the value is tied up in business assets.”
The bottom line is that succession planning can play a key role in retirement planning.
“Planning for succession is a long-term strategy,” Rees says, “and many business owners recognise that every business will one day be required to transition ownership. The question is, will this be achieved voluntarily or involuntarily? We believe that owners should consider how they will exit when starting the business to ensure the structure is appropriate and considers known tax issues.
Moreover, business owners should start to develop a clear exit strategy – ie, trade sale, inter-generational transfer, management buy out etc. – up to seven years prior to the desired exit date.”
The process of building super and preparing for the eventual sale of your business calls for discipline coupled with suitable strategies. Rogers says this is where professional financial planning can be invaluable.
“The financial planner’s job is to focus on the long term-view and make sure the saleability of the business asset is addressed as well as planning to minimise capital gains tax while maximising super contributions on the sale of the asset.”
With some suitable advice under their belt, SME owners can rest assured that the years of working to build their business should be rewarded by a comfortable retirement
Page 1 2
