A small-business owner had some questions for us. He’s been hustling for years to grow his business and thrive, but felt he was behind in saving for his retirement. He indicated that “He worked too much,” “had to pile it into the business,” and that “his business was his retirement.”
We warned him that while many entrepreneurs think growing a business is all they need to retire, but without a documented roadmap, he could end up pushing back his retirement age.
34% of respondents in one survey of small-business owners said they have no retirement strategy. 12% claimed they have no plans to retire at all. Those numbers are an indication of the problem that exists in masses and could be a reason why many business owners don’t fulfill their retirement dreams.
Running a small business takes guts, grit, and wits, but it can become so all-encompassing in your life that it can take your retirement as well.
Many people say they will just delay it if they had to.. But delaying isn’t always an option. As a small business owner, you should remember that unforeseen obstacles arise all the time and you don’t want to be caught unprepared when they do.
To help ensure that you can experience retirement on your terms—rather than reacting to what life or the business world throws your way—you need to proactively address these items today.
Here are five retirement mistakes small-business owners make and how to address them.
Strategy One: Create a Roadmap
Now that you realize that having a plan is better than no plan at all, you need to make one.
It can be as simple as defining your ideal retirement by clarifying when you want to retire and what lifestyle you hope to enjoy. Then build strategies to attain that ideal retirement. What actions do you need to take to fill the gaps between your current assets and your income?
Once you have a plan, hold yourself accountable. Don’t let the busy life of business ownership keep you from fulfilling the retirement you desire.
Strategy Two: Have an Exit Strategy
50% of business owners plan to leave their businesses in the next decade, but only 30% have a business succession plan.
Saying you’re planning to leave your business, but not having a plan, is like saying you’re going to make the major leagues in any sport and never practicing. No matter how long you want to work and how much you love your business, you need a clear exit strategy. Both for your financial health and the longevity of your business.
So just like when you created a roadmap, define what that ideal exit would be.
Is it selling your business? Passing it to the next generation? Finding an outside successor?
Decide what it is and then hire a qualified professional to give you a clear valuation of your company as it stands today. Your professional can discuss what you have to work with, what your goals are, and how to get there.
Once you’ve created your retirement strategy, make sure to stick to it.
Strategy Three: Separate Your Retirement Savings
Solely relying on the value of your business to get you into retirement is risky. Industries change and companies falter, but the focus it takes to be a successful small-business owner can blind you from realizing the danger.
Would you and your family be able to enjoy a comfortable retirement without your current income or profits from selling your business?
If the answer is no, then now is the time to start building your savings and balancing your personal and professional finances. Also make sure to explore available retirement-savings tools with your financial professional.
With the passage of the SECURE Act, many rules regarding retirement plans have changed, making this an ideal time to evaluate your strategy.
Make sure to review your budget and create a disciplined savings approach, identify ways you might be able to trim your current expenses or save on your tax liabilities, and establish a habit of regularly contributing to your personal retirement savings.
Strategy Four: Make the right insurance coverage as part of your planning
Here’s a scary fact: to save money, many small-business owners don’t carry insurance at all. This is doubly bad when it comes to life insurance because the role it plays can be so complex.
If you take out loans to support your business, using personal assets as collateral, your family members could be on the hook for that debt if you pass away. Life insurance provides an added layer of protection for your loved ones.
Keep in mind that this blog is for informational purposes only. It’s not a replacement for real-life advice, so make sure to consult your legal or tax professional before considering using personal assets as collateral.
If you want to understand more, analyze your current life insurance coverage and address your family’s life insurance needs. Calculate your total debts and expenses to find the amount your family would need if you were to pass away prematurely.
Work with a professional to determine how life insurance might be able to help support both your business needs and retirement goals, if you are having trouble finding one, let us know and we will help you with that.
Strategy Five: Hire Outside Support
As a small business owner, you’re no doubt used to shouldering a ton of responsibilities. It can seem to require so much management and so many skills in different areas that it’s easy to forget you don’t need to do it alone.
Hiring outside help can free you to focus on what you love about your business and help it thrive instead of wasting time on tasks you don’t enjoy and aren’t a specialist in.
Determine what professional support you could benefit from. Some easy areas are with accounting, legal, and financial professionals. If you do hire outside support, ask them to work together.
Aligning your financial life requires an understanding of its many facets. Make sure your support team has a clear picture of how your various pieces intertwine.
Embrace the benefit of outside professionals. They’re there to help you. Let them take some of the weight off of your shoulders by giving you insight.
How We Can Help
As experienced financial professionals, we are here to help you overcome the obstacles that business owners often face so you can seize the opportunities before you. Running a business is no tiny task. We’re here to serve as a resource for you and your family and are happy to discuss your current financial situation and future goals.
Every small business is unique, and so are the steps needed for its owners to have a quality retirement.
Feel free to contact us to see if we can help you discover your dream retirement.