At some point we all want to retire from our business so it’s important to understand how that will impact on our future income. For me, this starts with a personal balance sheet.
Whilst there’s no financial reporting standard for this here are the sort of things that I include:
- Sale value of your business less any costs of sale and capital gains tax
- Property less outstanding mortgages, costs of sale and capital gains tax
- Pension funds
- Other investments
- Long term savings
- I exclude short terms savings and current accounts as these are usually less substantial and they probably need to be maintained into retirement.
I then look at a forecast of personal income and outgoings.
Income might include
- Salary and dividends from your own business
- Pension income
- Rental income
- Other investment income
- Sale of assets (which might reduce income that those assets generate)
- Gifts and inheritances
And outgoings would be your household bills, hobbies, holidays, etc
When doing a long terms forecast these will change over time as you plan in major life events such as buying property, weddings, children, school fees, sale of property, cashing in some of the investments above, retirement homes, crises and even nursing homes.
As with any long range forecast there are huge assumptions to be made, your date of death being one of them, but it is a good start on when you can afford to retire and what sort of lifestyle you will be able to achieve.
Also worth mentioning that you should ensure that you have a valid will, and power of attorney for your finances, health and business.