For many business owners, the hardest part of retirement isn’t deciding when to stop working. It’s working out how to step away from a business you’ve spent decades building and feeling confident that you’re ready for what comes next.
After years of making decisions, leading a team, serving customers and being responsible for the future of the business, it can be difficult to simply switch off.
And this can lead some business owners to keep working longer than they originally planned. When you’ve spent decades building a business, stepping away is about more than the financial decision. It’s also about knowing what you’re stepping into and making sure the next stage of life is something you can look forward to.
The risk is that you can spend so many years building a successful business that you don’t give yourself enough time to enjoy the retirement you’ve worked so hard to create.
So, when you start thinking about retirement, the question becomes bigger than:
“When can I stop working?”
It becomes:
“How do I turn the value I’ve built in my business into a secure retirement?”
So, if you’re thinking about how to retire from your own business, it’s worth starting the conversation well before you plan to leave. You’ll need time to think about what your business is worth, who could take over, how you’ll transition out and how the wealth you’ve built can support the life you want in retirement. Here’s where to start.
1. Start with the retirement you actually want
Before thinking about selling your business, start with your personal goals.
What would you like retirement to look like?
Perhaps you want to travel more, spend time with family, reduce your working hours or simply have the freedom to choose whether you work at all.
Think about:
- The age you would ideally like to retire
- How much you would like to spend each year
- Whether you want to travel or make major purchases
- Where you want to live
- Whether you want to help your children financially
- Whether you want to continue working in some capacity
- What you want to happen to the business after you leave
These goals give you a clearer direction and help shape the financial decisions you’ll need to make before stepping away from your business.
2. Work out what your business is really worth
Before you can work out whether your business can fund the retirement you want, you need a realistic idea of what it could actually be worth.
It’s easy to have a figure in your head based on what you’ve built, what similar businesses have sold for or what you think the business should be worth. But the value a buyer is willing to pay can be quite different.
A proper valuation can give you a clearer picture of where you stand today and, importantly, whether there’s a gap between the value of your business and what you may need to fund your retirement.
It can also help you start thinking about your options. If the business is worth more than you expected that may give you greater flexibility. If it’s worth less than you hoped, you have time to do something about it.
And that leads to the next step.
3. Think about how you can increase the value of your business
For many business owners, the focus is understandably on running the business and growing revenue. But as retirement gets closer, the focus needs to shift slightly. It’s not just about how well the business is performing today, it’s about how attractive and sustainable it will be when you’re no longer running it.
A business that depends heavily on its owner can be harder to sell. If customers rely on you personally, key decisions sit with you and the business would struggle without you, a buyer may see more risk. On the other hand, a business with a strong team, reliable systems, diverse customers and consistent profits can be much easier to transition.
This is why preparing your business for retirement can start years before you actually plan to leave. You can gradually build a business that works well without you, strengthen its financial performance and reduce the risks that could affect its value.
And there’s another benefit: you don’t have to wait until you’re ready to sell to start making these changes. Building a stronger, more valuable business can give you more options, whether you eventually sell, pass it on to the next generation, transition it to your team or simply step back and remain involved in a different capacity.
4. Don’t leave succession planning until you’re ready to sell
You don’t necessarily have to sell your business to retire.
Depending on your circumstances, you might sell to an external buyer, transfer it to a family member, transition ownership to key employees, reduce your ownership gradually or retain an interest while stepping back from the day-to-day operations.
How you want to leave the business is an important decision in itself. Different exit options can affect the price you receive, how quickly you can step away, the income you receive during the transition and what happens to your employees and customers.
It’s worth thinking about this well before you’re ready to retire. If you know what a successful exit looks like for you, you can start preparing the business and your personal finances around that outcome.
And remember, the best option isn’t always the one that gives you the highest price. It might be the one that gives you the right balance of financial security, certainty, timing and a smooth transition.
5. Get your business ready for the market
Knowing what your business is worth is one thing. Getting it ready to be sold is another.
If you’re planning to sell, think about what a potential buyer will see when they look under the hood. They’ll want to understand how the business makes money, how sustainable those earnings are and what risks they might be taking on.
This is where giving yourself time can really help. You may have an opportunity to tidy up your financial records, strengthen systems and processes, address outstanding issues, reduce unnecessary complexity and make sure the business can operate without you being involved in every decision.
It’s also worth thinking about when you want to sell. You may have a preferred retirement date, but the right time to sell your business might not always line up perfectly with that date. Market conditions, the performance of your business and the availability of the right buyer can all influence the timing.
Preparing early means you don’t have to rush into a sale simply because you’ve decided it’s time to retire.
6. Think about tax, business structure and recent Budget changes
Selling your business can have significant tax implications. After putting years of hard work into building the business, you want to understand how much of its value you’ll actually be able to use in retirement. That’s why tax planning is an important part of preparing for your exit.
Even if you’re not ready to sell your business yet, it’s worth looking at how your existing business and wealth structures can support your personal financial goals. This may include making better use of available small business tax concessions and considering how superannuation, including an SMSF where appropriate, could fit into your broader strategy.
Recent Budget changes are also worth keeping in mind if you’re planning to retire from your business. Changes to CGT, small business CGT concessions and superannuation, including Div 296 tax, could affect how much of your business wealth you ultimately take into retirement and how you approach your exit.
For example, some changes may create opportunities for eligible business owners to access small business CGT concessions, while others may need to be considered when thinking about the timing and structure of your exit. The benefits, drawbacks and eligibility requirements can vary depending on your circumstances, so it’s important to look beyond the headline and understand what the changes mean for you.
That’s why it can be valuable to get professional advice before making decisions about selling your business or changing your existing structures. Your accountant and financial adviser can help you understand how the current rules apply to you and how your tax position fits into your broader retirement plan.
Tax planning shouldn’t happen after you’ve agreed to a sale price. It should be part of the planning that happens well before you put your business on the market.
7. Plan what happens to the money after the sale
Selling the business is not the end of your retirement plan.
In many ways, it is the beginning of the next stage.
Once the proceeds are received, you need to decide how that money should be structured and invested to generate the income you need.
For example, your strategy might involve a combination of:
- Cash reserves
To cover short-term spending and unexpected expenses. - Superannuation
To make the most of tax-effective retirement savings, where appropriate and within your contribution limits. - Investments
To provide long-term growth and income depending on your risk profile. - Debt reduction
To reduce your ongoing financial commitments. - Property
Consider whether to keep, sell or buy property and how it could fit into your retirement income and broader investment strategy.
The right mix will depend on your circumstances, risk tolerance, tax position and retirement goals.
The important point is to have this conversation before the sale rather than waiting until the proceeds are sitting in your bank account.
8. Prepare for the emotional side of leaving your business
There is also a part of business succession that doesn’t show up on a balance sheet.
Your business may have been part of your life for 20, 30 or even 40 years.
It may be where you’ve built relationships, created jobs, solved problems and achieved some of your biggest personal milestones.
So even when the financial numbers say you’re ready, you may not feel ready.
Think about what you will actually do with your time.
What will replace:
- The structure of your working week?
- The people you regularly interact with?
- The sense of achievement?
- The responsibility?
- The challenges you enjoy solving?
A successful retirement is not just about having enough money.
It’s about creating a life you actually want to move towards.
So, when should you start planning to retire from your business?
Ideally, three to five years +, before you plan to leave. It might seem like a long way out, but there’s often a lot to consider when you’ve spent years building and running a business.
Starting early gives you time to work out what you want your exit to look like, understand what your business is worth, get your personal finances in order and make any changes that could put you in a stronger position when the time comes.
It also gives you time to prepare the business itself. If there are things that could improve its value, make it easier to sell or reduce its reliance on you, you have time to work on them rather than trying to fix everything when you’re ready to leave.
And importantly, you don’t have to lock yourself into one path. You may decide to sell, hand the business over, gradually reduce your involvement or take a completely different approach.
The earlier you start planning, the more time you have to make thoughtful decisions, explore your options and set yourself up for the retirement you want.
Thinking about Retiring from Your Business?
If retirement is on your mind, you don’t have to have all the answers yet. Starting the conversation early can help you understand where you stand, what your options are and what you may need to do before you step away.
At Yield, we work with business owners to bring together their business, wealth and retirement goals, helping them plan for a confident transition into the next stage of life.
You’ve worked hard to build your business. Let’s make sure you have a plan for what comes next.
If you’re thinking about retiring from your business, reach out to connect with a Yield Financial Advisor and get a clearer picture of what you need to do to make the transition work for you. You can also explore our Business Planning service page to learn more.
