Making super work for you and your business

Consider the dilemma – you’re a small business owner with a list of expenses a mile long, dreams of expanding your business and you’re time poor. In this environment, the idea of researching and investing in superannuation might seem like an outrageous luxury.

If this is you, rest assured you’re not alone. Research shows around 1 in 5 self-employed people have no super, and many more don’t prioritise making voluntary contributions on a regular basis. 

While common, retirement adviser Sarah Broady says such actions can be risky.

“If you do nothing, if you don’t plan, the Age Pension just isn’t going to cut it,” Broady says. “Right now, the Age Pension for a couple who own their home is around $36,000 a year, and we don’t know what that figure is going to look like in the future with our ageing population.”

“There are lots of people who lack confidence in the super process, but the reality is you can have a lot of control with super these days, there’s so much choice.”

It’s advice that retiree Sue Holloway and her husband Keith wish they had benefited from during their working lives. For 27 years, the couple ran successful news agency businesses across Melbourne, but prioritising super was always difficult.

“People think you go into business and it’s a breeze, but it’s not like that at all,” says Holloway. “You try hard (to save) but there’s always something, that family holiday, or school fees, or something around the house that needs fixing. And you’re trying to keep your head above water with the business, so super just becomes the last thing you do.”

Save early and reap the rewards

Holloway advises younger business owners to think beyond this month or this year.

“The trouble is when you’re young, it seems so far off, but I would say, just put something in regularly, even if it’s small, it’s better than nothing, because those years creep on you so quickly.”

Broady agrees, although she says how much emphasis to place on super depends on your age and stage of life.

“Super is an incredibly strong way to save. Think of super as the chassis of the car. It’s an essential tax structure, but you still have other choices and other investments you can make on top.”

“Save along the way as much as possible because you’ll benefit from a longer investment period. It used to be that you could flood your super just before retirement, but the laws have changed and there’s a lowered threshold for deductible contributions now.”

Today, most self-employed people can contribute up to $25,000 per year into their super fund and receive a tax benefit.

Make a winning plan

Mark Chapman, Director of Tax Communications at H&R Block says “many small business owners don’t think about superannuation until they’re in their 50’s when they finally become empty nesters and have some spare cash.

In reality that’s too late. To build up a decent sized retirement fund, you need to start planning early, paying in what you can afford even when the business and your family demands can make cash flow tight. That way, your fund will build up over decades and you have a better prospect of a retirement nest egg that will allow you to live the lifestyle you want”.

Broady says “Be curious, ask questions, look at your super statement when it arrives in the mail, don’t just file it away. If you don’t understand it, that’s a signal to reach out and find someone to help you.”

One retiree who has no regrets is Bob Skinner. When Skinner bought into a mobile safety boots sales business later in his working life, he spent every cent of his super, his savings and mortgaged the house.

“This was before the rules changed, when you could access your super. At that stage when we first bought into the business, I was probably seeing things as a lot rosier than they really were.”

Skinner soon came close to losing everything. The experience was an important lesson, and one he learned from once business picked up.

“We got a shock,” he says. “It was the accountant who made us see that putting money into super was the best, most sensible form of savings.”

Skinner’s accountant set up a self-managed super fund for his client, and soon after Bob began investing all the profits of the business into the super fund. Now five years after retirement, Bob says he’s very comfortable with the decisions they made and the financial position he’s in now.

“We had a few things going for us. We had a very good accountant, we ran a frugal company and kept a close eye on the books, we didn’t have holidays for quite some years there and we didn’t buy new cars. And we were very fortunate that we had some big customers.”

Like Skinner, accessing the right advice is key. Broady says good advice is tailored to the individual.

“Your adviser should be transparent with you about fees from the outset, and if they start talking to you about products in the first meeting, walk away. The first meeting should be about them understanding you and your unique needs.”

Understand super - You need to understand there’s a reason why you’re saving this money today.

Research – Look beyond the product label. Look at how the money is invested, whether those investments are going up or down, and how much it’s costing you.

Understand your needs – Check out this great resource by ASFA which allows you to compare your expenses to current retirees and shows you how much super you will personally need to retire comfortably.

Start early – And benefit from a longer period of investment.

Make deals with yourself and stick to them – For instance, if you want to buy a discretionary item, put the same amount away into super.

Don’t fixate on a magic number – Don’t buy into a one-size-fits-all approach. You need to consider your own individual needs.

Diversification – Don’t put all your eggs in one basket.

Seek advice - Start the first conversation with your accountant and get a second opinion from an adviser you trust if you’re not sure.

This advice is of a general nature and must not be relied on in place of professional advice. Please speak to your tax professional.