If your business is your pension, make sure you're the one doing the firing
"Hat-Tip" is written by Nick Lincoln, IFA
Imagine - if you can - having the mighty Apple Corporation as one of your customers.
The near-biggest company in the world. And you are supplying it with services, or products, or both.
Imagine how much revenue this could generate for a business. For your business.
For local firm Imagination Technologies - barely five miles from our offices - this is not a pipe-dream: the company designs the graphics chip found in each and every iPhone (and iPad and iPod, for that matter).
Or rather, it did. As announced in the national media this week (and in the mighty Watford Observer), Apple has decided it no longer needs the services of Imagination Technologies. It is being fired.
Which, given that the latter gets (got) over half its revenue from the former, is a bit of a bummer. And investors in Imagination Technologies? They saw the share price plummet by over 60% in the wake of the announcement.
I have no doubt that, over the years, the Directors of the company:
- were well aware that perhaps too much of their business was dependent on the Apple contract
- made every possible effort to diversify their client base, to widen their revenue sources.
But facts are facts: Imagination Technologies' main customer is walking away. I know not of the financial situation of the company's owners - but I can't believe this recent news has left any of them with a more stable financial future. Sincerely: I hope I am wrong.
Your business funds your current lifestyle: can you be sure it will fund your future one?
An iPhone 7, as spotted yesterday
Many company owners think that their business is their pension. This is a high-risk strategy. The value of a business (your "pension") can plummet overnight.
Competition; technology; the economy; legislation. Any and all of these can strike at any time - and you have little-to-zero influence over any of them (or a hundred other variables).
A failing business can take years to recover (if it ever does), years that could and should have been spent enjoying a life away from the pressures of work.
Basing your future financial independence around one asset (the business) or one tactic (the infamous property downsize) is risky. A business sale may well help toward unlocking financial freedom - but it should never be the only key to that particular door.
To counter this, we often encourage business owners to build up other assets during the "earning years" - and to take advantage of whatever tax-breaks are on offer along the way. These investments can then be drawn down on in retirement, to help fund a lifestyle that is sustainable over time.
Spread the love: the Great Companies of the world
For shareholders in Imagination Technologies, this has been a rough week. Our regulator believes that people aren't clever enough to understand percentages, so I'll spell it out:
- You had (for example) £100,000 of shares in Imagination Technologies
- The share price has fallen by 60%
- The same shares are now worth £40,000
The lesson here? You don't have to be a business owner to have dangerous exposure to a business. If you had built a portfolio around this company alone, you are now in a potentially vulnerable spot. Remember Enron? Not only did the company go to the wall; many of its employees had their retirement savings plans chock full of Enron stock. They lost not only their jobs and livelihoods: they lost their retirement futures too.
If you are a business owner, there are ways to mitigate now the risk of solely relying later on the sale of your baby. These solutions can see your wealth invested across thousands of the Great Companies of the world, not just your own. Our clients have this diversification baked into all the investments that fuel their financial plans. Do you?
business is risky enough already. why make your retirement planning risky as well?
{The above is not specific financial advice aligned to your unique circumstances and requirements. If you act on this article without first reading your own body weight in Key Features Documents, personal illustrations and fund fact-sheets then you may well be struck down by lightning.}
© 2017 Nick Lincoln
