Maybe it happened on accident. Or, maybe you planned to have one when you were just in high school (or even did have one in high school). Either way, you were there as it was born. You raised and nurtured it, and watched it grow. All your time and money has been allocated to its survival and future, leaving little for much else.
To small business owners, their business is like their “baby,” which can become a problem when it comes time to retire. Occupied with serving customers and resolving unexpected issues, such as an equipment malfunction, small business owners often find it a challenge to simultaneously prepare for their next chapter in life.
In fact, roughly half of small business owners say they do not have a retirement plan and more than a quarter feel unconfident that they will save enough to achieve a comfortable retirement, according to one survey.
Most small business owners will one day have to move on from their babies. In order to make sure you don’t sacrifice your own long-term future, here’s what small business owners should do to help prepare for retirement:
Set goals
As a business owner, you know goals are critical for success. You should establish financial goals for your business as well as your retirement, with a focus on how they will impact each other.
For example, how you hope to exit from your business – sell it, pass it to a relative or shut it down – will influence when you can retire and how much you need. Each option has different considerations. A sale or succession plan may take longer as you find a buyer or mentor a new owner. You may have to sell assets like equipment and property if you choose to close your business.
Further, you won’t know what you need to do to achieve a comfortable retirement if you don’t determine what a comfortable retirement means to you. Ask yourself: What will you do in retirement? Will you travel? Will you want or need to work in retirement? Setting personal goals will help make the path to retirement clearer and show how your business can support them.
Create a retirement plan
Research by the Small Business Administration (SBA) suggests business owners are significantly less likely to hold retirement assets than private sector workers. This underscores the need to have a strategic retirement plan that guides your financial decisions, separately from your business.
Meet with a financial adviser now and throughout your life to build a comprehensive financial plan that includes retirement assets, investment strategy, taxes and Social Security.
It’s never too early or too late to start. Millennial business owners certainly have the benefit of time to simultaneous grow their business and retirement assets, but baby boomers will equally benefit from a retirement plan.
If you plan for a substantial piece of your savings to come from selling your business, take into account the possibility of changes in the market as well as liabilities and risk that may impact its value. Build your plan around a conservative sale price to avoid a significant savings shortfall as you enter retirement.
Further, don’t put all your eggs in one basket. Work toward contributing the maximum amount allowed into retirement accounts such as a 401(k) plan or IRA. You may have to pay yourself more, cut business costs in the business or reduce personal spending to do so.
Grow your business
According to the SBA, 70% of small businesses are run by sole proprietors. Sole proprietorships are less attractive to potential buyers. Growing your business, so that it becomes profitable even without you, can boost its value and turn it into a larger asset for your retirement. Consider hiring employees and utilizing consultancy services to help gain greater market share and improve services.
Make retirement a priority
When making business decisions keep your retirement in mind. Loans, such as those that require a personal guarantee, and other debt can end up affecting your personal finances. As you try to boost revenue or increase the scale of your business, be conscious of the personal risks involved.
Educate yourself
The intelligence and tireless work ethic that helped you thrive in your industry and stay ahead of your competitors can also help you make better financial decisions. Take advantage of educational resources available online to better your understanding of investments and retirement. Attend a webinar. Read personal finance blogs and books. Better yet, talk to a financial adviser about your personal needs.
Come to terms with life beyond your business
Small business owners are more likely to retire later and more likely to not retire at all than typical employees. It can be hard to envision life without your business. However, events outside your control, such as changing market conditions or health-related problems, may force your hand. Therefore, mentally prepare to say goodbye and think about the future, even if it means starting a new business – or raising a new “baby” -- in retirement.
Can’t picture yourself not working? Check out these 6 Helpful Tips for Finding a Meaningful Career in Retirement.
