We received another listener question today, from a small business owner called Kerry. Kerry is in her early 60s and, like many in her situation, she is close to retirement but only has a small amount of money in her super. Her husband is not able to work, so they rely solely on her income.
Many sole traders or small business owners are somewhat behind the 8-ball when compared to their wage-earning counterparts. This is because you’re in charge of your incoming finances, and have no forcing mechanism when it comes to paying into your super fund – unlike, as an example, for those in education or nursing who get with a fortnightly wage and have their super paid into automatically.
Kerry says that she consistently has bills to pay and that often this takes up all her income, leaving very little to go into her super.
We’ve also seen a few business owners who have the expectation that ‘my business is my super’ which means that they are expecting a large chunk of money when the time comes to sell the business. But unfortunately, not all businesses are sold.
Look at it from this perspective: if the business doesn’t generate enough income to contribute to super, then why would someone else want to buy it?
Our suggestion is to think about it like this. Assume you will sell your business for the grand sum of $1. There are always things out of our control – for example, pandemics! Contribute to your super and treat it as a mandatory expense – or a bill. Think of it like tax – only it’s better than tax, because you’re actually paying your future self.
Think about being on a wage – as if someone else were paying you – and try to contribute that to your super. If you were being paid a wage, you would be getting 9.5% of your wage put into your super. If, for example, you were on $100,000 a year, this would be roughly $10,000 a year. Cut this down to a weekly or fortnightly amount and aim for that.
Also, make sure you put away enough money to pay tax. Many don’t, but they usually only make this mistake once.
Something else to consider – if you’re a business owner in your 50s and not making enough money to add the amount you want to your super, perhaps it’s time to change your strategy. One way you could do this is to raise your revenue and reduce expenses. This is obvious advice, we know, but consider the ways in which you could do this. Putting up your prices could be one example – the cost of goods and services goes up each year and if you’re still charging the same as you were ten years ago, you’re not helping yourself. You’ll most likely find that most of the loyal clients you’ve been keeping the costs down for will be happy to pay an increased price anyway.
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Dallas Davison, Michael Hogue and Ali Hogue.