“My business is my superannuation”.
That was the comment we have heard from many business owners over the years. All too often, the needs of the business were always the top priority and minimal effort was made to extract money from the business in order to build personal wealth.
The fundamental problem is that business is inherently risky. Private businesses sell for multiples much lower than lower risk public companies because their likelihood of continuing to deliver sustained profits into the future is much more uncertain. It is the nature of private ownership. If the owner gets sick, if a major client leaves, if key staff depart, if a multinational competitor commences predatory practice or if there is a market downturn, smaller business are much more susceptible and often do not have the resources to withstand the impact.
What does that mean for the “business that is their superannuation?” What if the family’s assets and director’s guarantees are drawn into the mess? What happens to the family, retirement plans and the future?
Perhaps the keys to this are:
- Understanding risk, both in business and investment,
- Becoming strategic about making good returns,
- “Making hay whilst the sun shines”,
- Extracting money from the business whilst it is available,
- Driving investment strategies outside of the business, and
- Building ‘firewalls’ between business risk and family assets.
These are the key success factors in building, protecting and preserving wealth.