Oliver Johnson has been working since he was 14 years old. At the age of 30, he started his own car wash business. Now, thirty-five years later, Oliver is at retirement age and is planning to pass on his business to the next generation of owners.
Oliver is one of roughly 5.5 million Baby Boomers living in Australia who will be retiring over the next 15-20 years. This vast group of individuals own 420,000 small businesses, over half of the total small businesses in Australia. Baby boomers are selling their businesses for retirement, and that’s a lot of businesses that will be changing hands in the next couple of decades. With so many people retiring and selling their businesses, there will be many business owners like Oliver looking for help with selling their business, planning finances, and creating secure futures.
The average retirement income that most people aim for is $60,000 a year for an individual and $100,000 for a couple. These amounts give most retirees enough capital to relax, travel, achieve life goals, and put money away for future plans. To get there, an estimated $1 – $1.5 million needs to be put away, earning 4% to 5% per year in interest. There’s plenty of room for swings in these estimates based on markets and volatility, but that’s a pretty solid and reliable average. So, the average employee at age 30 should be contributing about 9.5% of their pay into their superannuation if they want to retire at 65 with that $60,000 retirement income.
But superannuation for business owners is usually much lower because they see their business as their retirement nest egg. Instead of setting aside any extra money, they usually reinvest it in their business for improvements, expansions, and anything else that will enhance the value of the company, so that they get the most out of it when they sell. This isn’t necessarily a bad thing, but it does force a higher level of commitment when it’s time to sell a business. Without the sale of that business for a good price, that self-employed entrepreneur is not looking at stable retirement years. The key for them is to sell businesses at a good price and immediately fund their superannuation with the proceeds to make up for all the years that they grew their business instead.
Unfortunately, many business owners turned would-be business sellers think that the sales process will be easy, and it’s usually not at all. “Many business owners have done their research and found us after they’ve had their business for sale on the market for five years or more,” says Steve Finn, Co-Founder and CEO of The Finn Group, the largest network of business brokers in Australia. “You might automatically think that the business was overpriced, but in reality it’s more often just a case of the sales process being poorly managed, specifically in terms of marketing. The other major issue is a lack of brokerage skills. Many people still think sales is about the numbers, but it’s not. It’s about the skills.”
Advertising that a business is for sale doesn’t guarantee a buyer. According to one report, up to 75% of Australian businesses will be put up for sale in the next 5-10 years, but only 25% of those will successfully sell. That’s why business brokers are ramping up their efforts right now to be able to handle the large number of business sales coming soon. If you’re considering selling your business, especially to fund your retirement, you should talk to a business broker to make sure you get the best deal in the fastest possible time.