Many employers offer the opportunity for employees to have a 401(k). Unfortunately, as a business owner, you do not have that same luxury and have to think of different ways to supplement your retirement. A recent survey from Manta showed that only 1/3rd of a group of 1,960 small business owners are actually preparing for retirement. Although it’s great to see so many entrepreneurs in this day and age, it makes you think what will become of them when its time to retire.
While it is important to focus on your business and make sure there is consistent growth, It is also vital to think ahead of the game. Since it is so easy to get caught up in the day to day tasks of owning a business, here are 5 key things you set in motion before you retire:
- Set goals
While planning for retirement, you must first decide where you want to be. You must ask yourself if living a modest life in an apartment, traveling the world in a yacht, or something in between is what you want. Having a basic understanding of where you want to end up will allow you to plan accordingly.
Many business owners might not realize that what you do with your business will also affect your retirement plans. Whether you are planning to sell, pass down, partner up, or even close the business will have a lasting effect on your plans. For example, if your goal is to grow the business, you’ll need to increase the value of it, add more employees, and increase revenue. All this takes time and proper execution of plans. It will be time-consuming, therefore a proper retirement plan should be set in place that is stress-free and works itself out as your business grows.
- Make a succession plan
According to the Manta survey, 34% of small business owners don’t have a succession plan set in place. What these business owners fail to realize is what will happen when they leave. Knowing who will take over after you leave is part of planning for you and for your business. Talk to a lawyer to figure out the legal requirements for a succession plan. After which it is best to talk with the person/people you have in mind to take over the business when you leave to make sure they are best equipped for the position.
Another option is implementing an employee stock ownership plan (ESOP), which allows employees to become beneficial owners and provides tax advantages for the selling owner. Whatever the case may be, make sure it is all in writing and all the legal documentation is set in place.
- Build your support team
Working with the right professionals can help you plan effectively for your retirement. There are aspects of owning a business while approaching retirement that many people are unaware of. For example, how to select the best savings options and tax implications from selling a business. By surrounding yourself with a team of professionals in all aspects of your life you will have great success.
Make sure your team consists of financial advisors, certifies public accountant (CPA), and a business attorney. Let them do the job you hired them for so that you can focus your energy on doing what makes you happy and successful.
- Plan how you will leave your business
If you plan on selling your business, you need to plan early to make sure it’s ready for potential buyers. Often times, business owners are not prepared to sell their business for multiple reasons and are stuck in a state of limbo on the verge of retirement. If you do not have a successor in place to take over the business you’ll need to obtain a valuation of your business and start planning to sell within 5 years before you are thinking of retiring.
Work with a CPA, attorney and financial advisor to ensure that you know the potential tax implications from the sale of your business. You’ll also need to start stepping back in the role you are in within your company. Small business owners should always work to be less involved in the daily tasks of their business. This has to do with the fact the businesses that require the owner to be heavily involved is less attractive to potential buyers.
- Diversify your retirement savings.
Selling a business can be one way to fund retirement, but it is not heavily advised to only rely on that money to bankroll your golden years. The future is unpredictable, and what is booming now might not be a few years from now. If your company suffers, so will your retirement plan.
Instead, diversify your planning by opening one or more retirement savings accounts as soon as possible. Retirement plans come in the form of SEP IRA’s, SIMPLE IRAs, 401(k)s or any combination of these plans.
If all of this seems too overwhelming, work with your financial advisor to create a plan that puts you on track for retirement. Ultimately, the end goal should be a comfortable and stress-free retirement.