Some of you may be right around the corner from retirement, while others may have a long way to go, but no matter where you fall on that spectrum, it’s never too early to start planning.
It’s estimated that almost half of small business owners do not have a retirement plan in place, and without a pension or 401(k) with an employer match to help, it could spell out disaster in the long run.
True, it is a bit more difficult to prepare for retirement when you are a small business owner, but that doesn’t mean that all hope is lost. It just may take a little bit more work than those not in your position.
When planning for retirement, regardless of age, there are a few simple steps you can take to help give you peace of mind as you take your leave.
Build a retirement plan
The sooner you start saving, the better. This being because age contributes to how aggressive your savings plan needs to be. Generally speaking, millennial small business owners will have more confidence in their retirement savings than baby boomers, according to a survey conducted by Entrepreneur.
This is possibly due to the fact that millennial owners start their businesses at a younger age, which allows them more time to grow their profit margins and create more comfortable retirement plans.
When building your plan, keep a few factors in mind. If you plan to sell your business once you retire, remain realistic about what its market value will be.
There’s no way to predict what the economy will do, how the real estate market will be and other factors that play into the worth of a business, but keeping a valuation range in mind can help you prepare for whatever the outcome might be.
Even if you plan to “cash out” of the business when it’s all said and done, it’s imperative that you still save now. Especially during the early growth years, it can be very tempting to put all profits back into a business, but this can leave you drawing the short straw in the end.
Set a goal
This might seem like an obvious one, but setting a goal for your business and thinking ahead to what you want to do when you retire is important.
No matter what you decide to do with the business, this choice will let you know how you need to prepare for your retirement.
Entrepreneur’s survey showed that more than one quarter of small business owners are not confident that they will have enough saved up to comfortably retire. This majorly cuts down on the idea of enjoying retirement and can ultimately affect the way you see going to work each day.
Be sure to take the advice of a financial advisor when looking over your business plan. Take this time to discuss your plans with the advisor to set a personal retirement goal and start taking the necessary steps to meet it.
Be smart with your money
Again, this might seem like an obvious one, but using your money wisely is very easy to overlook in your everyday life.
As a small business owner, there are many resources available, such as seminars and videos from the Small Business Administration, that can help you learn how to better manage your money. Many of these resources are free, so use them as much as possible.
A few topics may include insights on when to expand, the different types of loans available to small businesses, when to seek credit and more. Always keep the idea of retirement in the back of your mind when making big financial decisions, such as taking out a business loan.
Discuss any potential revenue increases with a banker or accountant to gain insight into the potential your business has. This will also help you understand which risks are smart and which aren’t worth it in the long run. These consultants can also offer advice on how debt level can impact your retirement goal.
Think about your business growth
In a study performed by TD Bank, they found that 57 percent of small businesses are sole proprietorships. This, according to Entrepreneur, means that the owner has basically replaced his or her income at a corporation with self-earned income.
You’ll need to grow if your end game plan is to sell your business. Sad to say, sole proprietorships don’t sell, since that would be like purchasing a job instead of a business.
To increase the value of your business, you’ll need to add at least three or four employees and grow your revenue. This will require you to be more strategic and less tactical in managing the business, and it will require you to bring in the help of either a banker or accountant as you grow.
With a well-run and growing company, a business owner should easily be able to get 50-70 percent of the value of assets in a buy-out, or around three to four times the revenue, according to Entrepreneur. Taking this step now could help make a big impact in your retirement fund later on.