We understand the specialized markets in which you operate and provide tailored solutions to meet your unique business needs.
Our comprehensive suite of business services combines industry expertise, market knowledge and professional insights.
MNP is a leading national accounting, tax and business consulting firm in Canada.
Suite 2000, 330 5th Ave. S.W.
Submit an RFP
MNP careers are Different by Design. As an entrepreneurial firm, we truly believe there are no limits to where your career can go.
Retiring on the terms you’ve dreamt for yourself and your spouse is a monumental accomplishment. As a business owner, having an accurate understanding of your business’ value today and what you will need to meet your retirement goals is critical to manage risks along the way and make the right decisions.
There are several key issues you need to consider for a successful retirement, including:
What You Have
Investment decision making hinges on the relationship between risk and return. And that fundamental relationship impacts you as a business owner-manager when planning for retirement. Generally private, owner-managed businesses are perceived as higher-risk investments compared to large, diversified public companies.
Income returns an owner-manager may realize from a private business will reflect a higher risk — it can also reflect higher returns compared to public company investments. Consider this scenario:
Your business generates annual revenue of $2.5 million. After drawing an annual salary of $100,000, the business generates operating cash flow of $250,000.
After capital expenditures, loan re-payments and retaining some cash for working capital purposes, you typically take a $50,000 bonus or dividend. Your annual total compensation from the business is $150,000 per year.
Hypothetically, a similar-sized company in your industry sells for five times operating cash flow. Based on operating cash flow of $250,000, this suggests a hypothetical selling price of approximately $1.25 million.
What You Don’t
If you anticipate a retirement lifestyle requiring an income of $150,000, you need to focus on the gap between your current income and your retirement income. Using the scenario above, there are some criteria you should understand when planning your eventual retirement:
If you, as the owner-manager of this business, were unaware of the current value of your business and the eventual income yield your retirement investments may generate, you may underestimate the need for business growth or savings.
Mind the Gap
How can business owners benefit from understanding this landscape better? As business management guru Peter Drucker put it, “if you can’t measure it, you can’t improve it.” Start by gaining an understanding of what you have, what you’ll need, and if there is a gap you need to close.
If your goal for retirement income is 80 percent of pre-retirement income, consider the requirements:
If your $1.25 million business value represents substantially all of the investable assets you have to provide for your retirement income, your net assets on retirement will need to be $1-million greater to achieve your retirement income goal.
How can you close this gap? Consider the following:
These considerations and more represent major business and life decisions that stand between you and the retirement plans you have in mind. Make sure you have clarity around your business’ valuation and what income you expect post-retirement so you can move forward now to close any gap.
For more information, contact Chace Hynes, Senior Manager, at 902.493.5439 or [email protected]
Related Topics:Small Business; Retirement
Suite 2000, 330 5th Ave. S.W.
Find an office near me