For many small to medium owners of business or professional practices, having a comfortable retirement relies heavily on the financial success of their business or professional practice.
Yet many principals do not consider how to extract wealth from their business or professional practices until it’s too late.
What follows is an overview of how you as a principal of a business or a professional practice can extract wealth from your business or professional practice.
Start with the End in Mind
Determine what you need to meet your lifestyle and retirement requirements and build your wealth from your business or professional practice accordingly.
Ascertain the “Type” of Enterprise You Have
Essentially there are three types of “Enterprises”. That is to say an Enterprise can be built to Keep, Built to Sell or Built to Close.
Therefore if you wish to keep your Enterprise within the family determine how much after tax income your Enterprise will provide you with after you exit. If you need supplementary income for your lifestyle requirements you may need to extract wealth from your Enterprise and build wealth outside of your Enterprise before you exit. If you have an Enterprise that CAN be sold determine when and how you will sell the Enterprise well in advance. Alternatively if you have an Enterprise that is to be closed determine when it will be closed and how you can extract wealth before or at the time of closure.
Extract and Protect Money from Your Enterprise before You Exit
Money left inside your Enterprise (as cash, working capital, creditors or other investment assets) is at risk of being lost if the Enterprise suffers a downturn or goes into liquidation. Therefore extract as much cash (via salary, dividends, super contributions) as possible from the Enterprise each year and put the money to work for your family outside of your Enterprise. If need be, the money can be lent back into the Enterprise for working capital needs via a secured loan. The loan will at least rank ahead of creditors if the Enterprise runs into difficulties. Also consider investing the money in lower risk investments in your family trust or superannuation fund.
Plan Your Exit Strategies
A “planned exit strategy” involves getting your Enterprise ready to hand over or sell to the next owner.
As a key requirement consider the 3RS (Risks, Return and Readiness for an Enterprise to be sold at any time) and plan accordingly to maximise the value of your Enterprise at sale time.
Preparing for the “Unexpected”
Life doesn’t always go as planned due to illness or injury or even death.
Such events could negatively impact on the value of your Enterprise which may have disastrous consequences on family circumstances. As such, you should plan for what would happen if you could not turn up to your business tomorrow.
At Pavuk Legal we can assist you with Succession Planning, Sale of your Business or Professional Practice and Advice and Strategy to extract wealth from your Enterprise and many other legal aspects.
Many other essential hot topics for business owners is all found in the book Nobody Else’s Business. Nobody Else’s Business is about helping business owners live the life they want to live, now and in the future. It is the ultimate guidebook for succession planning of modern Australian businesses.
To purchase your own copy of Nobody Else’s Business please follow the link http://www.nobodyelsesbusiness.com.au/
For the full range of Legal Services that Pavuk Legal offers please go to: www.pavuklegal.com/services/