The trouble with SME owners and superannuation

Have you looked at your super lately?

Over a third of small business owners don’t have a solid roadmap to retirement, with many taking a chance that they can sell their business instead of contributing to their own superannuation.

Key figures

  • Over one third of SMES are not contributing to their superannuation
  • 44 percent of SMEs believe they will need $1 million for retirement yet
  • Over half of those under 50 years old have no retirement plan

The stat comes from MYOB’s latest SME Snapshot report, and shows the importance of taking care of yourself in addition to taking care of your staff and business.

SME owners, according to the snapshot, think that they need about $1 million to retire comfortably – but in general over half of SME owners will not hit this mark.

Read more: How much do I need to retire at 60?

Worryingly, less than half of SME owners under the age of 50 had a roadmap in place for retirement – with many are relying on selling their business to fund their retirements.

In fact, recent research from the Association of Superannuation Funds of Australia revealed that almost a quarter of self-employed people have no super at all – a scary proposition.

“It’s surprising to see that superannuation is not top of mind for all small business operators, given many contribute regularly to their employees super,” MYOB chief executive Tim Reed said.

“MYOB research highlights a huge gap between what business operators know they should be doing, and what they are actually doing. We need to support our SMEs in retirement planning and emphasise the importance of regularly contributing to their own super.”

After all, putting all your retirement eggs in the business sale basket isn’t exactly a prudent way to plan for a worry-free retirement.

So, despite SME owners being legally obligated to understand the importance of superannuation to their employees it would seem on the surface at least that they haven’t grasped the concept themselves.

There could, however, be another factor in SME owners lack of retirement planning.

Cashflow conundrum

One of the other key takeaways from the report was the ongoing concern around the lengthening of average payment terms.

Fifty-four percent of SME owners interviewed by MYOB had waited more than six months to be paid by a customer, while even more disturbingly, more than 70 percent had written off money owed to them.

“Being a small business owner means contending with multiple challenges to the financial health of your enterprise. SMEs are often forced to wait months for payment, resulting in cash flow problems,” Reed said.

With cash flow worries being created by a lengthening of payment terms, SME owners are prioritising things such as payment or rent over their own superannuation payments.

Late payment by customers is increasingly becoming a pain point for SMEs, with previous research finding 53 percent of SMEs expecting the timing of key customer payments to put pressure on their business.

Several high-profile cases have put the spotlight on the issue in recent times, including the controversy around Woolworths’ supplier payment terms.

Reed said some big businesses weren’t supporting the SME sector.

“It would be encouraging to see the government implement a national prompt payment protocol to ensure small businesses are not being delayed payments by big businesses. Big business should lead here, by ensuring all SMEs are paid on time,” he said.

“Unfortunately, some look to use their power to implement unreasonable business practices, such as 90-day payment terms.

“Small businesses require government support to help limit their cash flow problems, and shorter payment terms is an important place to start.”

Last month MYOB launched PayDirect Online in Australia, promising to slash the time between billing and payment by adding the ability for the SME to raise and invoice and email it instantly to a customer.

The customer is then able to view the invoice and pay directly online from the invoice.

PayDirect Online will be available as a native feature in online accounting solutions MYOB AccountRight and MYOB Essentials so users are not required to sign up to a third party service.