Image credit: Wilson Porter
Small and medium-sized business owners nearing retirement are facing new challenges with succession planning as their children opt to pursue careers outside the family business.
New research from NAB Private Wealth has revealed that many business owners are working beyond the traditional retirement age due to significant obstacles that delay their plans.
Almost half of small-business owners are over the age of 50, with 22 per cent within five years of retirement. Despite this, 46 per cent expect to continue working past the age of 67.
NAB Private Wealth executive Michael Saadie commented on the shift in business transitions, saying that this change is creating new succession planning difficulties for small-business owners.
“For generations, small business owners expected family members to take over, but that reality is shifting, leaving many unprepared for retirement,” Saadie said.
“Most business owners no longer anticipate a family successor because fewer next-generation family members are seeking to step into small business ownership roles.”
Saadie said that younger family members may have career aspirations in newer, evolving industries or may face growing challenges in managing a business within an increasingly competitive market.
“At such a pivotal time, this shift makes it critical for business owners to have a well-structured succession plan, so they have certainty over what happens to their business when they retire,” he said.
More than half of small-business owners wish to retire by the age of 67, but 46 per cent believe that will lead to the closure, liquidation, or sale of their business to someone outside the family. Less than four in 10 expect their family to take over.
Many business owners who plan to work beyond 67 cited financial reasons for this decision, underscoring the importance of early financial planning to untangle both personal and business finances.
“Despite their success in building and sustaining successful small businesses, for many the concept of retirement looks vastly different from traditional expectations,” Saadie said.
“As Australia’s biggest business bank, we know the immediate big challenges small businesses face like hiring and retaining talent and navigating red tape, but also the longer-term thinking around succession and wealth planning, which is crucial.”
Saadie said that wealth planning is often overlooked, addressed too late, or dismissed as too complicated, but failing to plan properly can put both a business and personal wealth at risk.
“This research highlights the urgent need to better support the vital contribution small business owners make to our economy and our way of life,” he said.
The research also revealed that small-business owners generally fall into three categories when it comes to wealth transfer planning. One-third have a documented plan in place, another third have discussed a general plan but have not written it down, and the remaining third have no plan at all.
Less than one-third of small-business owners have an ongoing relationship with a financial adviser, with many turning to accountants or remaining unsure where to find reliable guidance and support. Many expressed a desire to build stronger relationships with trusted partners such as private bankers.
“By building out comprehensive wealth transfer strategies, business owners can achieve financial security and leave a lasting legacy for future generations,” Saadie said.
Source: https://www.brokerdaily.au/lender/20362-sme-owners-struggle-with-succession-planning