Is Your Retirement Dependent on Selling Your Business?

A successful and profitable business can make its owner wealthy while leaving the household financially exposed. The same company often provides the family's income, holds most of its wealth and is expected to fund retirement through an eventual sale, where it is a saleable asset. Income, wealth and retirement can therefore all be hit at once, by a natural disaster, the loss of a major customer, a shift in what customers want or a health problem for the owner. Few salaried households have their income, their largest asset and the funding of their retirement tied so directly to one enterprise.

The dependence runs both ways. An owner planning to sell needs a buyer at an acceptable price and time. An owner planning to carry on needs the health, the energy and the trading conditions to make continued ownership worthwhile. That owner also needs the business to still be worth something if the day comes when selling is the sensible course. In our view the ideal aim, where it can be reached, is a pool of assets outside the business large enough that what happens to the company does not decide what happens to the household. You might think of this as a freedom fund. It protects against the eventualities an owner does not control, and it makes keeping, transferring or selling the business a choice made on the owner's terms. Whatever the business later fetches is added on top.

What you want comes first

Selling is the route most owners have in mind: a clean break and a lump sum. There are more:

• Keeping the business, and the purpose it gives you, but working fewer hours or carrying less responsibility
• In a business large enough to carry it, appointing management to run the company while you keep some or all of the shares
• Passing the firm to family or staff, potentially over several years
• Where the business has little value without its owner, running it down over a period of years, then closing it

Which path suits you depends on any number of factors: how you want to spend your time afterwards, whether your health and energy allow continued involvement, whether your role can be reduced if you like, the industry you are in, and what the household needs financially. Keeping the business may pay more each year than selling it and investing the proceeds, and for many owners it also provides purpose and a sense of validation. The concentration, the illiquidity and the responsibility stay with it. Alternatively, selling releases capital and time, but the proceeds may support far less income than the business produced.

Businesses can be as varied as their owners. Nothing in this piece fits every scenario, so treat it as a way of unpacking your own position.

Start with what retirement will cost

To calculate what you might need to fund retirement, current personal spending is the logical starting point, adjusted for the life you expect after stepping away from the business. When you retire, new costs might appear. A company often pays for a vehicle, phone, travel, memberships and sometimes health insurance, which you will pay personally after an exit. Goals put off while the business was being built or sustained, such as longer or more frequent travel, a bach, or new hobbies, might add more costs. The early, more active years of retirement tend to be the expensive ones.

As for any household nearing retirement, NZ Super covers part of the total annual income needs for eligible people from age 65. The gap between retirement spending and NZ Super, plus any other dependable income such as rent from property held in your own name, is what savings and investments must supply. The capital this takes depends on matters including investment returns, inflation, tax and how long you live.

Many successful SME owners may find themselves in the enviable position of having far more than their household ever needs for retirement. That opens other opportunities, such as helping children into homes or businesses of their own, giving to family or to causes while you can see the effect, or retiring earlier than you had assumed, so treat the retirement figure as a minimum.

Counting what already sits beyond the company

Next come the household's assets held independently of the operating company: any KiwiSaver balances, perhaps an investment property, savings and investments, and premises held separately from the company. Together they are the freedom fund as it stands today. For each asset the questions are whether it can be turned into cash or income when needed, and whether its value still rises and falls with the business. Premises let to your own company are usually a sound asset in their own right, but the rent stops if the company does, so they are only partly independent of it.

Pay, profit and sale value

Before the business can be valued, its earnings need splitting into pay for the work you do and profit from owning it. Pay for your work is what it would cost to hire someone to effectively do your job, a market-rate owner's salary. The profit left after that pay is the return on ownership.

Buyers and valuers usually price an established trading business on its maintainable earnings, the profit it can be expected to keep producing after paying a market rate for the owner's role. That profit is multiplied by a figure reflecting growth prospects and risk. Most New Zealand SMEs sell for between one and five times earnings, and the median multiple reported for the year to June 2026 was 3.49 times for general businesses, with earnings measured after a salary for the owner's work. By way of example, suppose a business earns $200,000 a year before interest, tax, depreciation and amortisation (EBITDA), after paying its owner a $150,000 salary for running it. At 3.5 times, the operating business is worth about $700,000. For ease of explanation the SME has no material assets or liabilities, which would increase or decrease the value. Formal valuations are available from most accountants should you be unsure of usual sale multiples of businesses similar to yours, and especially when circumstances such as a sale, lending application or insurance sizing depend on the figure.

Some businesses with valuable tangible or intangible assets might not fit neatly into this model: consider a trucking company with a fleet and a depot which may be worth more for its assets than just its profit suggests. For most trading businesses, though, the profit after a market-rate salary is what a buyer pays for. Buyers pay for the part of it they expect to continue once you have gone, so a business whose customers, know-how or daily decisions sit with the owner sells for less, if it sells at all, than one which trades without them.

If you don't already keep tabs, several years before a likely sale, speak with business brokers and senior people in your industry about what businesses in your sector are changing hands for. The approach works best in sectors with many comparable businesses, rather than in a niche operation where there may be no or few comparators. Also be mindful valuation multiples move. Changes such as artificial intelligence, robotics, and software are already shifting the nature, profit margin, and valuations of many industries, and this may accelerate. Within a decade your industry, and the value potential buyers see in your business, could be materially different.

Consumer demands and tastes move too. Take alcohol, for example. New Zealanders' alcohol consumption is at a record low, amid a long-term decline, driven by health awareness, preferences for moderation, rising duties, and cost of living pressure. It is feasible this headwind changes what a winery, micro-brewery, bottle store or bar is worth.

The cash a sale leaves

The headline price overstates the sale proceeds which might reach the household. Business debt is repaid at settlement, broker, legal and accounting fees are deducted, and tax may apply to parts of the price, such as depreciation recovered on plant. A buyer may hold back part of the price as an earn-out or pay it over time. How much comes off the headline price depends on what is sold, how the price is allocated between assets and whether any of it is deferred. New Zealand has no broad capital gains tax, though there are some pitfalls and exceptions, so confirm the tax treatment with your accountant and lawyer before agreeing to anything.

For financial modelling of retirement income, we would typically encourage using the lower end of the valuation range, net of what a sale costs and counting only what arrives at settlement, as the base figure, and treating anything above it as upside.

Keeping the business against selling it

In the example above, where the business is worth $700,000, the owner who keeps the business receives $200,000 a year of ownership profit before tax, on top of the $150,000 salary for the work. Based on what the business would fetch if sold, the profit is a yield of about 29 percent. Selling converts the business into what is probably an untaxed sum of $700,000 once. If a diversified portfolio returned 7 percent a year before tax, the proceeds would produce around $49,000. A gap of this size is common, and it is just one reason many owners keep going. ABC Business Sales puts the pre-tax income yield on a privately held business at 29 percent, versus about 5 percent for New Zealand listed shares, before any capital gain on either. The figures of 7 versus 29 percent are not strictly comparable, as Vinessa Orsbourn, a private wealth and risk manager at Become Wealth, explains:

"The business return is higher because the owner accepts risks and downsides including concentration, key person risk, illiquidity, sleepless nights, and more. In contrast, a diverse portfolio of shares, especially if spread globally, significantly reduces all of those risks. That is why taking at least some capital out of an SME and accepting a lower expected return can make a lot of sense."

Building the freedom fund

A required-capital figure invites a false comfort. If retirement needs $1 million and the business is valued at $1 million, the figures balance, and a conclusion could be the SME owner has nothing further to do other than keep the business valuation at least at the same level. Yet a valuation depends on many circumstances, including trading conditions, a buyer and the industry still looking the way it does today.

The aim is the largest fund the household can reasonably build independently of the business. The more of the household's future it already covers, the more say you have over whether the business is kept, transferred or sold, and when.

Ideally, the fund is built while the business is earning. To continue the same example, the owner has $350,000 income a year before tax, and about $234,000 after income tax, before ACC levies, if the whole amount is taxed as personal income. A household spending $150,000 a year could be moving around $80,000 a year into the fund, before a spouse's earnings or any other income are counted. Over a decade, before any investment return, that adds up to more than the business in the example is worth. Whether the figures are more or less, the approach is the same.

Paying cash out of the business, and where it goes

In our experience, profitable businesses might pay out too little, or pay out plenty which doesn't get sufficiently saved. Some owners reinvest every spare dollar within the SME. Reinvesting everything, if that is a possibility, is often the most logical course based on the headline rates of return alone. Of course, a business which needs capital to grow has less to distribute while it does. Opportunities to reinvest come and go for any number of reasons. A business reaches a plateau where new systems, technology or staff are needed before the next step; acquisition targets come and go depending on conditions; a market turns; a growth channel closes.

Josh Copeland, a private wealth specialist at Become Wealth, has seen one pattern often: "The business reaches a level of maturity where there are sizeable regular distributions, then within a couple of years the household's spending has risen to meet the new household income level. Boats, motorsport, four-wheel-drives, a bigger house. The surplus which could have built a standalone portfolio is being spent."

Identifying how much the business can spare without starving its working capital, reserves or committed spending is key. A cash flow forecast allows for tax, debt repayments, planned equipment and property spending, and the working capital the next year needs, so is usually the best start point for identifying how much might be distributable over any given period, and when. Business.govt.nz publishes a cash flow forecaster for owners who do not already run one.

Cash paid out of the business should first build a household reserve to cover spending during an interruption to business income, if one does not exist already, and close any gaps in household insurance. Most SME owners realise cash paid out of the business should not just sit idle in a bank savings account or term deposits, without good reason. The most suitable long-term investment portfolio asset mix for any household depends on goals, situation, other assets, and so on, and capital held for a decade or more can generally be invested in growth assets such as shares. Returning capital to the company, or investing it in your own industry, a supplier or a competitor, might feel safe because you understand it, yet it can rebuild the concentration the portfolio partly exists to reduce.

KiwiSaver savings are generally locked in until 65. They cannot fund any other aim before then, such as buying a bach, early retirement for a spouse, or seizing a business opportunity such as buying out a competitor. Many owners contribute little once no employer is deducting contributions from wages. In the year to March 2025, 44 percent of self-employed New Zealanders actively contributed to KiwiSaver, against 78 percent of employees. A locked account such as KiwiSaver cannot do the freedom fund's work, though there are plenty of different funds and portfolios which can.

Owners whose businesses have produced high earnings yields might find the returns of a diversified portfolio dull. We have observed a tendency among some owners and former owners to seek higher returns in wholesale investments: property syndicates, mortgage funds and unlisted ventures offered without the disclosure or protections afforded to a retail offer. One way to qualify as a wholesale investor is an eligible investor certificate, where the investor certifies they have the experience to assess the offer and a lawyer, accountant or financial adviser confirms it. In 2022 the Financial Markets Authority (FMA) issued seven formal warnings to offerors after finding certificates confirmed on grounds such as holding a term deposit or a KiwiSaver account, and promotions which emphasised high returns and low risk. In September 2025 the High Court, on a case the FMA brought to clarify the law, confirmed an offeror may rely on a certificate one of those professionals has confirmed and need not assess the investor's own ability to evaluate the investment. Running a business well shows you understand your industry, which is a different skill from assessing a leveraged property syndicate or similar.

Protecting what you build

If illness or injury stops you working, your income falls while the business loses a key person. If the business has to be sold during that period, the compressed timetable and the loss of that person tend to shrink the buyer pool and weaken your negotiating position. The first question most owners ask is whether the business would survive without them, and for how long, and the answer varies with its nature, size and staffing. A thorough risk assessment works through what could go wrong, costs the impact on the household and the company, and settles for each risk whether to insure it, carry it from the fund, accept it, or some combination.

ACC cover depends on how you work and are paid, which is one reason the choice between salary, shareholder remuneration and dividends matters. Self-employed owners are generally covered by CoverPlus, which pays up to 80 percent of the previous year's liable earnings, subject to limits. The payment may be reduced if the business keeps earning or you partly return to work, and an owner whose liable earnings were low last year may receive limited compensation even if the business is now producing more. Shareholder-employees are covered through the company's Workplace Cover. Eligible self-employed owners and non-PAYE shareholder-employees can apply for CoverPlus Extra, which pays 100 percent of an agreed amount before tax. Under its full compensation option the payment is not reduced if the business keeps earning, and the cover must be in place before the accident. ACC covers accidental injury rather than illness or bodily wear and tear, so income lost to non-accidental reasons needs separate protection.

Private cover fills the gaps, and protects the household, the company or both depending on the policy:

• Income insurance, structured around how you pay yourself, since policies built on salary alone can undercompensate owners who take drawings or shareholder remuneration
• Life and trauma cover, sized against personal debts and family needs
• Key person cover, a lump sum to the company for recruitment, lost profit or disruption when a key person dies or is seriously ill or disabled
• Shareholder protection, a lawyer-drafted buy/sell agreement setting out what happens to a shareholder's stake on death or disability, with business insurance to fund the purchase

The practical way to identify and mitigate these risks is to have a business insurance adviser work through them with you, then check them each year. A common finding in our advisory work is cover set when the business was smaller and never increased as it grew.

The legal side is a matter for your lawyer, and it usually covers:

• A current will and enduring powers of attorney, so someone can act if you lose capacity and your shares pass as you intend
• A shareholder agreement setting out the other shareholders' rights on a shareholder's death or disability
• Ownership structures, whether personal, joint, trust or holding company
• Relationship property, since whether a business interest counts under the Property (Relationships) Act 1976 depends on the circumstances, and a second relationship, a business owned before it or a contracting out agreement each justify a family lawyer's advice

A personal guarantee makes you liable if the company fails to meet the obligations it covers, which ties the household's assets to the business however large the fund beside it. Keep a current record of the guarantees you have given, including bank facilities, premises leases and trade accounts with guarantee clauses in their terms. Seek release or reduction when the lending position allows it, and keep the family home out of business facilities if alternatives exist.

The business on your terms

A business is a great thing to own and a poor thing to be owned by, and investment assets outside the business can provide the difference. The larger that fund, the more choice you keep over when to step back, whether to sell, and which terms to accept. Circumstances change: health, enjoyment of the work, a successor emerging, a manager proving capable, market changes, a shift in customer concentration or an unexpected approach from a buyer can each shift an SME owner's plans.

A first conversation with an adviser establishes what retirement will cost, what the household already holds in its own right, and how to invest and protect the fund you build. Book a complimentary conversation.