There are many mistakes that owners can make when it comes to running their business. One of the most common mistakes that business owners make is failing to create a retirement plan. Time is a scarce resource when you’re running a business, so many owners spend theirs on improving their business. What ends up happening though is that many find themselves too busy to focus on saving for retirement. In a survey conducted by Manta in 2017, about one-third of business owners say they don’t have a retirement plan. Of those that said no, about 37% of them said that they believe that they don’t make enough to retire. There are many business owners who also believe that their business may be too small to afford plans like 401(k)s. While true to some extent, there are a few things that owners can do to overcome those barriers.
In life, when you fail to plan you plan to fail which is why goal setting is important. For business owners, that means drafting plans in order to reach their goal of having a comfortable retirement. The first step would be to identify what you want to do after you retire. An owner may choose to sell their business, pass it down or close it altogether. These decisions can impact how they may prepare for retirement. If they want to sell it, for example, an owner may want to increase the value of their business. To do this, owners are advised to plan their retirement at least 3-5 years in advance. At that time, owners can consult with advisors and recruit exceptional highly motivated employees. Having a happy workforce can make your business look good to prospective buyers.
Another common mistake that small business owners make is not diversifying their investments if they have any. Quite often, many business owners rely on the profits they’ve made from selling their business to fund their retirement. The issue with this option is that many business owners fail to accurately measure the value of their business. For this reason, it is best that owners first determine what is the value of their business. Doing so will help owners prepare themselves for the next most important step which is developing an exit strategy. Owners should consider putting their profits into investments like bonds, low-fee index funds and more. This can protect their business’s assets from unforeseen circumstances that could arise. Poor market conditions, for example, can force owners to sell their business below their actual value through distress sales. Making early investments in retirement savings plans is also highly recommended.
Aside from financial security, there are a few other reasons why owners should invest in retirement plans. Some of these include tax breaks as well as wealth-building opportunities for both employers and their workers. Plans like SEP-IRAs and other low-risk investments can further help owners during retirement. Investment plan offers can also help owners recruit quality workers who may run their business one day. In a national survey conducted on small businesses, over 50% of owners said that retirement plans have helped them attract great employees. Business owners who offer plans such as 401(k)s can also lower their personal and business taxes as well.
Business owners should also talk to lawyers and financial advisors before they make their next move. Not every owner chooses the best retirement plan available or is aware of the tax implications of selling their business. It is for this reason why owners should consider expert opinions from others when planning for their retirement. Business owners could also take the opportunity to grow their business if they can before they plan on selling it. This can further increase the business’s perceived value to buyers which will allow them to sell it at a premium.
There are many options that business owners can take when it comes to retiring. However, the best way business owners can prepare for their retirement is by planning ahead. The retirement process can be a very overwhelming ordeal to go through with especially on your own. That’s why it’s important for business owners to research their options and seek professional help when they can. Doing so will ensure that your business is in good hands when you’re ready to hang it all up.