Paul Clitheroe - consultancy - an option for pre-retirees
19 Mar 2012
ipac Paul Clitheroe
my weekly view
By the time most of us reach our 50s, we’ve racked up considerable experience and skills in our chosen career, often with a valuable network of business contacts. These are things we leave behind when we retire but they can be useful assets for older workers who start their own consultancy.
It’s not uncommon these days for pre-retirees to start their own business. Over-60s can use their superannuation savings to buy into a franchise or other venture but it’s a strategy you need to think through carefully – preferably with the benefit of professional advice. If the business goes belly up you could lose a lifetime of tax-friendly savings. Even if the business thrives, there can be tax implications if you sell the venture later on when you’re ready to finally stop working.
One of the pluses of setting up a consultancy is that it doesn’t require much capital outlay. A home office equipped with a personal computer, internet and phone line, plus some stationery and perhaps a small website is enough for many people to get underway.
In today’s market there are plenty of opportunities for skilled consultants across a range of fields from engineering and design through to accounting and education. As many of our big companies downscale their administrative and service departments, consultants are often used to fill the gap.
If you find yourself on the receiving end of a redundancy package, and you’re aged in your 50 or 60s, the reality is that you could have a tough time finding similar employment. Setting up a consultancy gives you the benefits of self-employment including flexible work hours and the convenience and cost savings of working from home.
Running your own show also brings some downsides. The first is that you’re likely to have a drop in income, at least until the business finds its legs. If you are starting a venture from scratch (as opposed to buying an existing business) you may be eligible for the New Enterprise Incentive Scheme (NEIS). This a government funded support program that offers small business training, advice and mentoring, plus ongoing income support (usually equal to the Newstart Allowance) for up to 52 weeks. Visit www.centrelink.gov.au for more details.
As a self-employed worker you will be responsible for making your own superannuation contributions. This is something of an Archilles heel for many small business operators but bear in mind when you work for yourself you can normally claim a tax deduction for your super contributions - up to $50,000 annually if you’re over 50.
In fact if you are running a one person consultancy, contributing to your super is even more important than if you own a retailing or manufacturing business. It can be extremely difficult to sell a business that relies heavily on the skills of just you. Running a consultancy will provide additional income as you head towards retirement and delay the time when you start living off super. However planning to rely on the future sale proceeds of your consultancy to fund your old age could leave you short changed.