Is my business a sufficient retirement pot?

Chris Hutton
Chris Hutton, Director of Riverfall Financial Limited is a Chartered Certified Accountant and has undertaken in excess of 50 business valuations for buying, selling and dispute purposes and acted as expert witness in the Family Courts on business valuations.

My business is my pension

Many business owners believe that they can retire on the value of their business, but is this enough?

In the world of small business owners, many enjoy a luxury lifestyle funded entirely from their business.  So when it comes to retirement they desire this same lifestyle and with more time on their hands it’s even more important to ensure that this lifestyle is well funded.

Sensible business owners will have been saving in to pensions to build a pot which can assist in funding their later years and is also inheritance tax efficient.

So what is enough to retire on?

This is a difficult question to answer as no two lifestyles are the same, but it can be addressed by undertaking a financial life planning assessment with Riverfall Financial.

This will assess the current and future desired lifestyle of the business owner, their current assets and liabilities, funding of future assets and ongoing and significant one off expenditures, in order to build a financial plan.  This would be updated at annual reviews to ensure it remains on track. Essentially, a personal business plan.

For a business owner it is important to look at the funding gap and assess whether this can be bridged by sale of their business in retirement.

Below we look at an example of how this might look.

  • Mr and Mrs West are 65 and 63 and own a design and print business which generates them an income of around £100,000 per annum after making pension contributions of £20,000 per annum each.
  • Their joint pension pot currently stands at around £750,000, sufficient to generate an income in retirement of around £22,500 per annum*.
  • The couple have full state pension records which will provide £18,678* of additional joint income for them in retirement.
  • They have no other significant income generating assets.

With pension and state pension income the couple have a shortfall against their current income (£100,000) of £58,822 per annum.

Following assessment, Mr and Mrs West acknowledge that their income requirement in retirement could be reduced by £20,000 as they will soon fully repay their mortgage and will not be travelling as much, thus reducing the gap to £38,822 per annum.  This will therefore need to be funded from the sale of their business.


When looking at the value of the business it is important to consider the type of sale likely;

  • is it on the open market to an unknown party,
  • is it a Management Buy Out sale to employees,
  • or many business owners now are looking at an EOT (Employee Ownership Trust) as a tax efficient sale option.

The structure of the sale process is very important as this can significantly affect the take home gain after tax. The sale price will also be dependent on the business sector.

In order to bridge this retirement shortfall of £38,822 per annum, the owners will need to achieve a sale price in excess of £1m*, an unrealistic expectation of a business this size unless it has significant assets (such as property) as part of the sale.

As part of the life planning assessment it will therefore be important to set realistic expectations on their likely funds in retirement and how best the couple can live the lives that they want. Not least, how can we extract funds out of their business year on year to put them in a better position?

The above highlights the importance of financial, accounting and tax advice in retirement planning.

The earlier a financial life planning assessment is undertaken the more time business owners will have in influencing their lifestyle in retirement.

Tax treatment varies according to individual circumstances and is subject to change.

* Using a 3% rate of drawdown.
* Using full state pension figures of £179.60 per week for 2021/22 tax year

The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested. The content in this blog was correct at time of writing. Please contact us for further information.

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