There are over Two (2) Million Small Businesses in Australia. Managing them effectively is a significant undertaking for their owners, let alone worrying about investing outside their business.
Many struggle to reward their contribution to the Business.
With the onset of Covid, paying a “salary” on a consistent basis can be challenging, especially where there are other financial commitments.
Business Owners - "Not Paying Themselves First"
The making of regular Superannuation contributions is generally a low priority, especially as the self-employed are excluded from the mandatory contribution system too.
The priority is investing in the business. The bigger goal may be that the business can provide a form of financial security ultimately through its sale or succession.
Research collated by Mercer Australia states 63% of Australia’s self-employed population are not making superannuation contributions.
Many groups are calling for changes to the superannuation system, by introducing a payment obligation for the self-employed perhaps at a lower contribution rate initially. As an example, Mercer points to Finland, where self-employed workers to provide an annual salary estimate, upon which Superannuation contribution calculations are made.
Valid considerations perhaps. We know that for all our self-employed connections, reality often gets in the way of good theory.
Options for Business Owners
Superannuation can be both a tax effective and long-term planning tool as part of good financial management.
Consider how you can make it a part of your business:
- Start with incremental contributions, perhaps monthly by direct debit.
- Choose a platform without excessive administrative commitments.
- Establish a goal of total contributions over a medium-term horizon.
- Understand your "Opportunity Cost"
(i.e Your Super Return vs. Investing in the Business).
Once investments become material, this also creates an asset for the owner where its performance is not tied to the performance of your core business.
An attractive consideration for many business owners and others that might depend on them too.
Self Managed Super?
Having an SMSF provides more choice and flexibility (including have up to four members) and the ability to access investment options that would otherwise be unavailable.
On the flipside, managing an SMSF is not easy. As the trustee, you need to ensure your fund complies with all relevant laws. Ongoing costs are significant and management is also more time consuming.
More Information?
e: enquiry@mcpgroup.com.au
w: www.mcpfinancial.com.au