SME owners urged to tackle succession planning roadblocks: NAB

A new study has revealed that small business owners nearing retirement face succession planning challenges as children choose alternative career paths to taking over their family business.

The study by NAB Private Wealth found that nearly half of small and medium business owners expected their retirement to trigger the closure and liquidation of their businesses, or force them to sell to someone outside their family.

Due to this and other various retirement roadblocks, many SME owners were found to be working beyond the “traditional retirement” age.

According to the research, nearly half of the respondents were over 50 and 22 per cent were within five years of retirement age, yet 46 per cent expected to continue working after they turned 67.

Michael Saadie, NAB Private Wealth executive, said there were beginning to be shifts in traditional business transitions, with new succession planning challenges now front of mind for business owners.

“For generations, small business owners expected family members to take over, but that reality is shifting, leaving many unprepared for retirement,” he 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. Next-generation family members may have career aspirations in new and evolving industries or face growing complexities of managing a business in an increasingly competitive landscape.”

Saadie noted it was crucial for business owners to have a well-structured succession plan to ensure the certainty of their business when looking to retire from the workforce.

NAB revealed that fewer than four in 10 business owners expected their family to take over their business when they chose to retire.

Of business owners who said they wanted to continue working after the age of 67, many said it was because of financial reasons, “highlighting the need for early financial planning to unlock value and untangle their personal and business finances”.

Saadie said the research by NAB highlighted the urgent need to better support the vital contribution small business owners made to the economy.

“Despite their success in building and sustaining successful small businesses, for many, the concept of retirement looks vastly different from traditional expectations,” he 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.”

“Too often the focus on wealth planning is overlooked, addressed too late or put in the ‘too hard’ basket, but failure to plan can put both their business and personal wealth at risk.”

The research showed that small business owners often fell into three wealth transfer planning categories, with one third having a documented plan, one third having discussed general plans with nothing solidified and the rest with no plan at all.

Joe Rinaldi, a small business owner from Sydney, said he recommended that small business owners solidify their relationship with a financial adviser and accountant to access reliable information, support and guidance when it came to succession and retirement planning.

“My advice to small business owners is to start planning early. Even if you foresee a sale or retirement years from now, discussing potential scenarios with a trusted accountant, lawyer or private banker can help you map out possibilities early and avoid last-minute surprises.”