If you’re a small business owner, protecting yourself and your business goes beyond securing proper insurance agreements and building an emergency financial cushion – it also means ensuring that your savings will sustain you throughout retirement.
Most of those anticipating retirement have savings plans sponsored by their company, and though you are likely expecting to retire at some point, the process may be more complex in the absence of such a plan. You must determine how to keep your income flowing after retirement or how to capitalize by selling your business and creating a nest egg.
It’s never too early to begin planning for retirement and there are several things you can do as a small business owner to prepare.
Make saving a priority. As other financial goals arise, saving for retirement may get overlooked. It’s tempting to re-invest a large portion of your profit into your business, but you may regret not socking away more savings for your personal financial security — especially if retirement comes along faster than you expected. If you don’t have an established retirement savings plan, consider contributing to an IRA or other qualified investment plan. It’s less tempting to pull money from accounts that are earmarked for a specific goal.
Develop a succession plan. It’s important to think about the future of the business that you’ve put so many resources into. Research the legal procedures for transferring ownership (to a family member or employee) and document in writing who you intend to take over your business after you’ve retired. There may be tax ramifications when you sell or transfer your business, so be aware of these so you can prepare for the financial impact.
Prepare to sell. If you intend to sell your business, be realistic about its value. It’s difficult to consider accepting less than you believe it’s worth, but if you retire in a down market or sooner than you’d planned, you may need to compromise on an offer. Keep in mind that selling your business may be emotional. Having knowledge about the process before you consider offers may make it less stressful and ensure the decisions you make are financially sound.
Retirement can be especially confusing and complicated for small business owners, so consider working with a professional financial advisor who can help you balance your business needs with your personal ones. Everyone has different priorities and values, but it is up to each individual to prepare for her own retirement. The earlier you begin planning, the easier it will be to fulfill your long-term financial goals and avoid difficult trade-offs.
Rob Davis lives in University Place with his wife Lorri and sons Wesley and Parker. With over 34 years of experience, he is a CERTIFIED FINANCIAL PLANNER™ practitioner and is licensed/registered to do business with U.S. residents in the states of Washington and Idaho.
Ameriprise Financial and its representatives do not provide tax or legal advice. Consult your tax advisor or attorney regarding specific tax issues.
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