Could you afford to retire if you never sold your business?

For many business owners, the dream is clear.

Build a successful business, sell it when the time is right and use the proceeds to enjoy a comfortable retirement.

It's a plan that has worked well for many entrepreneurs.

But what if it doesn't happen?

In the early years, most businesses are focused on survival. Cash flow is king and every penny is reinvested back into the company. As the business becomes more established and profits begin to grow, it's easy to assume that the business itself will become your pension.

The reality, however, can be very different.

Many businesses never sell. Others achieve a sale price that falls well short of what the owner expected. Even successful businesses can struggle to find the right buyer, particularly if the owner is looking to exit quickly because of ill health, changing market conditions or personal circumstances.

That raises an important question.

What happens if you can’t sell your business?

It's a question many business owners haven't considered.

Relying on a single asset to fund your retirement carries risk. Your business may represent years of hard work and could well become your most valuable asset, but its future value is never guaranteed.

As your business grows and begins generating surplus cash, it may be worth thinking about building wealth outside the company as well. This could include pension contributions, personal investments or other assets that help reduce your reliance on the eventual sale of the business.

For directors, pensions can be particularly attractive because employer contributions are often a tax-efficient way of extracting profits while building funds for the future. However, they are just one part of a wider financial plan.

Another question to consider is this:

What does your business actually need to be worth before you can retire?

Surprisingly, many business owners don't know.

Without understanding the income you'll need in retirement, the tax that could be payable on a sale and the value of your existing assets, it's difficult to know whether an offer represents financial freedom or simply a number that sounds attractive.

This is where financial planning and exit planning come together.

By understanding your retirement objectives first, you can work backwards to establish the value your business may need to achieve, how much wealth should be built outside the company and whether you're currently on track.

Selling a business can provide life-changing financial security, but it shouldn't be the only plan.

The strongest retirement strategies are usually built on more than one asset. By diversifying your wealth over time, you're less dependent on the success of a future sale and better prepared for whatever life and business have in store.

If you're a business owner and you've never asked yourself whether you could retire without selling your business, it may be the most valuable question you ask this year.

Business exit strategies may involve the referral to a service that is separate and distinct to those offered by St. James's Place.