Home / Opportunities / Retirees need to think long and hard before buying a business

For those bored in retirement or simply needing the dollars, starting afresh in a new business venture can be a viable option. It looks exciting and it can be financially rewarding but be warned – the challenges are many.

For some employees, retirement cannot come soon enough – grandchildren, sport, travel and long lunches beckon. But it’s not for everyone, with a growing number finding that retirement leaves a huge gap in their life as the built-in routine of regular work – and the social interaction that accompanies it – becomes suddenly absent from their lives.

For others, it’s the simple realisation that their retirement savings will not support the lifestyles that are used to and want to maintain.  

So, as the Melbourne-based accounting and financial advice firm Highview Retirement details, it’s no surprise that an increasing number of older Australians are starting their own businesses, with the evidence suggesting that they are achieving a degree of success.

Indeed, many retirees are getting quite creative when it comes to generating an income in retirement, with one option being to buy a franchise or a small retail business to secure a regular income in retirement.

Typically, franchisees get support, assistance and training from a parent company, but they are still responsible for the hiring and firing decisions and the nuts and bolts of running a business. Big retail franchisees in Australia include Boost Juice, Domino’s Pizza, Subway, KFC and McDonald’s. In the service space there is Jim’s Mowing and Blue Wheelers dog washing.

But it’s not all beer and skittles. McDonald’s asks prospective franchisees for a commitment of upwards of $1.5 million unencumbered funds without partnerships or investors. The franchise fee for a new Subway restaurant is $20,000 plus GST but this doesn’t include the cost of the fit-out and equipment that will be between $170,000 and $325,000 plus GST.

Jim’s Mowing says the cost of its franchise starts at $33,000 with a guarantee to earn $1,500 a week.

These are not insignificant costs and do not include ongoing expenses. Whether a franchise can generate a profit will depend largely on where the store is located and how well it is run.

Liam Shorte (pictured), managing director at Sonas Wealth, an SMSF specialist adviser and a non-executive board member of the SMSF Association, is sceptical about franchises, telling The Golden Times that they never seem to go well.

“I’ve seen people buy franchises and within two to three years they’ve lost 30 to 50 per cent of their money.”

As he points out, retail, hospitality and maintenance businesses are not easy to run and require significant input from the owner. They can also be physically demanding on a more mature body. They are rarely, if ever, hands off.

Yves Schoof is managing director at Affluence Private Wealth and a specialist financial planner for health care professionals.

“People used to think (franchise-style businesses) were sort of a licence to print money, but a lot of them have had their struggles. From what I’ve heard from clients who’ve had those sorts of businesses is that you really need to stay hands on,” he says.

Shorte says that income-producing strategies that have been more successful for his clients include buying several investment units, renting them out through Airbnb but conducting all the management, cleaning and administration themselves.

“I’m seeing clients more and more buying a few units and letting them through Airbnb and doing all the work themselves and that’s providing a regular income,” he says.

Clients with a self-managed superannuation fund (SMSF) also have the option of buying business real property and leasing that to a business.

Shorte is seeing this with retiring clients who have sold their business but kept the property and are leasing that to the new owners who are often family. “It’s happening a lot in families with younger generations,” he says.

Schoof agrees that this is a good use of an SMSF and one he has seen some of his clients in the healthcare industry adopt.

“That’s probably the one strategy that that can be really powerful, particularly where there is goodwill value attached to the location of a business,” he says.

A doctor or dentist’s surgery that has been operating in the same place for 20 or 30 years is going to have built up a patient base and lot of goodwill that a new owner will need to pay for. The former business owner can then retain the physical property and rent it back to the new owner.

“[It’s] much more powerful than residential property because the tenant obviously pays for all the outgoings. So, as the landlord, you just collect the rent,” Schoof says.

Rent can also be indexed annually to CPI that also makes it a good way of securing a relatively hands-off income stream in retirement.