Let's consider the worst case scenario whereby you can't sell your business or can only sell it for a significantly reduced price. Let's face it, that's going to be a fairly devastating situation. Not just from a financial point of view, but personally as well.
But time and time again this is exactly what happens - business owners are surprised to find themselves being forced to sell their business for a lot less than expected, unable to find a buyer, winding down a business they hoped to sell, or without appropriate succession. It's a reality we can't afford to ignore.
A serious threat to a lot of industries these days is technology. Consider how technology has and is impacting the following industries:
I even read a Michael Pascoe article in The Age recently on how internet-enabled "ride sharing" is threatening the taxi industry.
And it's not just about technology - look at what global competition is doing. We're watching almost entire industries pack up and head overseas!
Ok, the purpose of today's blog is not actually to scare you, but this is an area where no business owner can afford to be complacent. We've invested too much to "hope for the best".
So what can you do? Well you probably can't stop change. And you absolutely don't want to put your head in the sand about it. And you most definitely don't want to end up on some current affairs program saying technology changed and now I have to work until I'm 80...
You need to at least manage some of the risk by diversifying! We all know the cliche - don't put all your eggs in one basket. Well it's a cliche for a reason - it's true. This is one of the fundamental risk management tools for any investment, including your business. You need to have other assets in your portfolio aside from your business - if nothing else it's a plan B.
It's not going to stop the disappointment that I mentioned earlier and you won't necessarily be looking at the same financial position you'd planned for, but it will look a whole lot better than if you'd simply put everything into the business and didn't have assets elsewhere.
So where exactly should you diversify?
This is a question you need to ask us. Our job is to look at your overall financial position, including your business, and identify any risks and how they might be mitigated.
Some typical diversified assets might include:
- Property - residential, commercial, business, retail, holiday let etc
- Managed Funds
- Term Deposits
And a great way to achieve this diversification is through superannuation. Super is an absolute monty when it comes to tax savings and I don't know a single business owner that doesn't like to save some tax.
By contributing some of your business income to super, you can mitigate some of that risk and take pressure off your business to provide everything for you in retirement.
Self Managed Superannuation can be particularly attractive to business owners and I have a theory that's because most of us are control freaks, or what I prefer to call management enthusiasts. So it stands to reason we'd like to be in control of our retirement savings through super as much as we are through our business.
In fact there are 500,000 SMSFs set up in Australia and as far as the money is concerned, we're talking about more than $15 billion. That's billion folks!
Anyway, if this is an area of interest to you, I'm running a Q&A session with Taxation specialist Michael Moschetti and Investment specialist Michael Crowe, about Self Managed Super.
It will be PACKED with education information, including:
- Why Australians have invested more than $15 billion via Self Managed Super;
- How Self Managed Super differs from standard super;
- What's involved in running a fund;
- How much it costs to manage a fund;
- Keeping up with the rules and changes;
- How to make decisions and where to go for advice.
By the way, I read an article in The Age over the weekend about how people should be wary of seminars because the people running them are looking to stitch you up before you leave. That absolutely isn't the case at our education sessions and that's probably the reason they're so popular. Of course we hope you like what we do and will choose us to help you make sensible financial choices, but there is no hard sell, it's an education session open to everyone in the community.
Ok, so the people I deal with in my work as a business adviser and financial adviser are busy and don't have time to waste, so I have to keep my advice simple and practical. And at the end of the day, it doesn't really get more practical than being prepared - and I didn't even have to go to Scouts to learn that. If you haven't diversified your assets away from just your business, then it's time to do something about that and frankly you should do it fairly urgently.
Of course, we're here to help!
If you'd like to hear more of what I have to say on the matter, click here for a recording of my most recent "You & Your Business" radio segment on 98.1FM Radio Eastern.
PS. Please don't keep me a secret. If you know someone who’d enjoy this or find it useful, pass it on!