SME RETIREMENT PLANS - THINK AGAIN

Half of small business owners are depending on their business to fund their retirement but a third believe they will have difficulty selling. This signals a bleak future for some looking forward to a comfortable retirement according to a recent survey from CPA Australia's national small businesses.

The survey on succession and exit planning was conducted with 600 small businesses (independent and employing fewer than 20 staff) and 105 CPA accountants in March 2004.

It is believed that the number of owners planning to use their business as their primary source of retirement income is even higher, at 66%. Clearly figures showed cause for concern. With almost 40% of owners planning to leave within the next 5 years, we may see an increase in small business owners not being able to sell their business to fund their retirement.

Currently, 7.5% of small businesses exit the sector each year, but these are offset by new entrants. A significant increase in the number of exits could have major economic consequences if strategies are not in place to ensure a growing pool of viable, efficient businesses.

With Australia's ageing population, the number of business owners reaching retirement age will dramatically increase in the next few decades. According to Australian Bureau of Statistics, the proportion of people aged 65 and over, is projected to double in 50 years, from 12.4% in 2001 to 24.2% in 2051.

Small business owners need to get smart, plan and prepare for their business succession or exit, years in advance of their retirement, for the best results. Even if they are closing their business, planning will make a big difference to the amount they walk away with. Leaving their exit planning to the last minute is not a good strategy.

Again, according to CPA Australia's survey, only 38% of small business owners interviewed have succession plans. Age is the most common motivating factor for the majority of this group (21%). The survey also revealed that four in ten of those with succession plans did not seek professional advice.

Clearly, it is a real concern that many small businesses are not maximising their business value by planning their exit in advance or seeking professional help when they have no experience or skills in selling a business. If you sell your house, you would get professional help to renovate it and negotiate the best price on the market. The same rationale should apply to selling a business.

The survey shows that less than 40% of small businesses would be prepared to take major steps to maximise their business. For example, fewer than four in ten claim they would restructure their business (38%); spend three to five years preparing for a sale (36%); or hire more staff (26%). This finding was supported by 45 per cent of CPA's who said that their small business clients are "not too keen" to invest in their business to maximise it's sale potential.

Although, overall Federal compliance costs worry SME's the most, State taxes like payroll tax and stamp duty are impediments to growth.

Payroll tax, according to the survey, elicited the most negative response, particularly in SA and WA, as did stamp duty.

It would seem no one is listening, despite lobby groups arguing their case for reform and / or reduction of these hideous imposts, the W.A. Government recently ignored SME's and maintained payroll tax at existing levels.

Unfortunately, our SA counterparts have been blasé again and provided a ridiculously small drop in the rate of payroll tax from 5.67% to 5.5% without increasing the threshold level.

Foley has retained the threshold at $504,000, the lowest in the country and made no change to land rates or thresholds!

The lack of vision in this non action is breathtaking - no vision.. no leadership! In short, this SA Government (like many before it) has put politicking ahead of true reform and as such are rendered as being branded gutless!

So, in summary, if you are nearing retirement and are thinking of selling out of or down your business to a family member, we at Advantage One have a 6 point succession program which may be able to assist you plan and maximise this transition in advance!

Call Tony Martin for further details.

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