How Small Business Owners Can Successfully Prepare For Retirement

Small business owners juggle many activities daily such as serving customers, meeting deadlines, preparing payroll, attending to unexpected issues that frequently arise, among other tasks. With such a hectic schedule that always holds their full attention, it's difficult to focus on a future that looks aeons away.

Some small business owners explain that capital which is the life flow for a small business is in short supply. Michael Fogurth, a small business entrepreneur posits that most small business owners don’t save because they work hard and want to enjoy the profits by taking a fancy vacation, rewarding themselves with a luxurious purchase or reinvesting the profits into the business for more growth opportunities.

A survey carried out by TD Bank reveals that over 45% of small businesses don’t have a retirement account or any solid plan to help their workers hit the average retirement savings by age in America. Without the cushion of an employer to provide a 401 (k) or a pension to rely on, here are preemptive measure you can apply today to ensure you go on enjoying the same standard of living today when you retire.

Set a goal for your business and a retirement age

Having a goal for your business and making a mental note for when you plan to retire is crucial. Whatever your plans at retirement are, either to hand it down to a family member, sell it off or close the business, the decision you make heavily influences your retirement plans. You could plan to reduce your active hours as you pass the 55-year mark, work part-time by the time you’re 60 and retire at 62.

Brainstorm on the best way to grow your business

The TD Bank survey also shows that 57% of small businesses are sole proprietorship's with self-earned income. If you plan to sell your business at retirement, it must have value to be attractive.  Hire at least four employees; enlist help to run the business from accounts, HR, and other core positions. This is a strategic plan that helps to enhance the appeal of your business. With more employees; it’s easier to increase revenue and you can get about 50-70% more revenue in a buyout.

Set up a financial plan for retirement

It is important to start planning today. Create a combination of savings, pension and investments to help you pay off your debt quickly. Use a retirement calculator to determine an ideal number based on your current earning. If you retire in your early sixties, you will require up to 80% of your current gross salary for the first 10 years and after that, 50% until your early eighties. Some recommended steps include:

-          Pay off your home mortgage.

-          Invest in viable real estate.

-          Consider a ROTH IRA and full life insurance.

-          Hold yourself accountable by tracking your expenses.

-          Grow your company and save more.

-          Get a savings account apart from the ROTH IRA.

-          Dedicate a small amount of your earning to shares and other equity investment. Volatile shares are likely to yield more result, so be brave.

Avoid the danger of a sole income

It's important to diversify your income outside of your business. A huge risk would be reinvesting every single dollar of profit you make right back into your business. Once your company has a firm foothold, you should start looking other areas you can invest.

If the business fails, so does your income. You can prevent this by using a small percentage of your income to invest in other areas of interest as it can help with your tax bill and enhance your tax-deferred until you’re ready to retire.

Have an exit strategy

It might seem strange creating an exit strategy but it should be one of the first considerations when planning for retirement. Your small business that took a lifetime to build could be your main asset if you’re considering options to fund your retirement. You could liquidate assets or sell to the competition for a good price if your business has value.

Your business must function in a way that it runs smoothly if you’re away, so think of the best person or group who could continue your legacy where you’ve left off.

As you prepare your exit strategy here are a few question you should think about

-          Can your business run without you?

-          Who else is interested in buying, a business partner maybe?

-          How can you add value to the business?

-          Should you retain partial stake or sell completely?

Consider your employees

While businesses are not required to provide pension for their employees, your employees will provide more value knowing their future is secured. Some of the best staff won’t consider joining your firm if you don’t offer a retirement plan; so you can encourage them to set up an IRA or 401(k) and match what they contribute with at least 50 cents on the dollar.

Be smart with money

Hundreds of resources online can help small business owners learn the best methods to handle business finances. Some of these include webinars, bank seminars and retirement blogs such as

These resources will help you plan, seek credit, learn how to manage money better and chose a retirement plan that works best for you. Always keep your retirement goal at the forefront when taking a business loan that might affect revenue.

Choose a retirement strategy

Setup a simple IRA – a company with less than 100 employees can use a simple IRA (Individual Retirement Account) plan. The contributions are deducted from all employees payroll before tax. Employers can either match what employees are willing to contribute or pay a fixed contribution.

Solo 401 (k) – this plan is ideal for self-employed business owners or freelancers. The main benefits include

-          Contributing on both the employer and employee side.

-          Setting up a solo 401 (k) plan for your spouse that works as an employee.

-          Contributions from the employer side are deducted as business expense.

-          Flexible contributions based on what you earn.

Developing a retirement plan for a small business takes hard work, discipline and commitment. Set a goal, diversify your income, choose a strategy and follow through on your plans. This will ensure you live a post-business executive lifestyle of luxury you’re getting used to today.

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