By Grant Jackson
As a business owner, if you were earning about R50,000 a month five years ago – or at least your lifestyle requires R50,000 a month —and you were planning on retiring this year… that’s about R600,000 a year that financial advisors, or financial planners would suggest you need if you wanted to retire. You’d need 20 times your annual salary in retirement capital to be able to retire.
If we took R600,000, and we multiply that by 20, that’s R12-million you should have to be able to retire. If you subtract the value of your house, the value of any contractual savings you have, like your pension plans, RAs, as well as any other assets you might have, let’s supposing you that total 6 million Rand that leaves a gap of 6 million RAND between what your retirement capital should be, and what your actual capitalists if you’re a business owner, you can fill that gap by using the value of your business. In other words, selling your business for a value that equates almost to the value of your house.
What it requires is to understand what that value could be, and what you’d want it to be… and the working your way to that point. Usually, what happens at that stage is that you start scratching around for somebody to value a business to work out what you could sell it for, now that you’re heading towards retirement… but that’s too late!
What you should have done was started that process five years ago, got an idea of what the value of your business was or could be, and realised what you needed to do in order to get it to that value.
That way you know what you business will be worth when you retire and you know your retirement is better secured.
Instead of playing Russian roulette, rather plan way ahead for your retirement by improving the value of your business as early as possible.
Let’s say that, as of now, you have travelled back in time from the future, and you now have the opportunity of doing exactly what I’ve just said. You’re planning on retiring in five years time… so think about how much capital you’re going to need, how much will come from your various other assets… and how much will need to come from selling your business… and then you can work at putting in place in your business those structures or improvements that you need to do in order to realize the maximum value you can from your business in five years when you come to retire!
- Grant Jackson, Grant Jackson consulting