Pensions for small business owners

Small business owners: have you thought about your pension?

Whilst owning your own business is great many small business owners forget that one day they may wish to retire. The reason why pensions aren't normally a consideration for a startup is because start up businesses tend to be cash poor and focus on reinvesting all cash in the business. However, this behaviour can inevitably become habit resulting in the individual never putting into a pension.

In the UK the government has sought to try to find a solution to this problem. As of April 2016 small businesses with even just the one employee are required by law to provide a pension. This means that even for those small businesses when the owner is the only employee they are required to put into a pension. Unfortunately, small business owners are allowed to formally opt out of this requirement. As you can imagine, most do opt out. This is an understandable action but doesn't help the business owners in retirement.

Small businesses forty years down the line

Let's say that you ran your own small business from your 20s right up until you could claim the state pension. After forty years of business you're ready to retire and you haven't got a penny saved in a pension pot. Yes, you've paid off the mortgage on the property that you live in and have some savings but not enough should you live well into your 80s. What are your options?


You could downsize your property. Sell your current home, release the equity, go and live someone cheaper and smaller and use the excess profit to live off in retirement. This strategy is a bit of a gamble as you may not necessarily have enough.

Business property

Perhaps the business owns property that you could sell. No brainer really!

Sale of the business

Have you considered that you may be able to sell the business? If this is an option for your retirement plan then you need to be thinking today how a would-be buyer might view the Company. You need to ensure that all the accounts are accurate and in order demonstarting a long history of growth and cash production. 

In addition you need to be thinking about what a prospective buyer might be looking for. Consider that you have a consulting business. The business relies solely on the intellectual property of the consultant, so what on earth could the consultant do to make the Company worth buying. They could create documents and templates of best practice, they could create a customer list and a supplier list and a list of key contacts, they could create a brand presence for the business, or else they could produce a product to actually sell to customers today along with the advice. All of these things give the Company a value that a would-be buyer may actually be interested in.

Licencing or sub-contracting

You could keep the business running but subcontract or licence out the word. Easier written than actually done. This would require years of building up a reputation to ensure the work keeps coming in. It would also require a transition period where you could start to pass on some of the work that comes in to reliable subcontractors. Finally, it would require quality control checks, training and admin for those to whom you subcontract.

Dividend strategy

Finally, rather than selling the business you may consider keeping the business running. Hire I a manager to continue the business. They would continue the business and potentially even grow it and you could remain the shareholder and collect your dividends well into retirement. Obviously this strategy is quite dependent on the type of business you have. A consulting business could not simply be run by a manager for example.

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