When you’re busy growing your small business, the end of the road is often the last thing on your mind. But planning for retirement should always be a high priority.
Small businesses face a number of challenges when it comes to retirement. Failure to plan for it early—whether through investments or how you plan to sell the business—can expose you to major risks. Simply depending on selling your business to fund retirement isn’t a safe bet.
“While owning a business can be a very good way to build wealth, it is important that business owners plan effectively throughout their careers and complement their growing business assets with additional savings and investment to help fund a comfortable retirement,” says Daniel Koblin, vice president of Pinnacle Consulting Group in Irvine Calif.
Follow these tips to plan a comfortable retirement:
Start setting money aside when your business is generating sufficient cash flow. You don’t necessarily have to be profitable, but you should be generating enough to cover expenses and still put money aside. “It’s never too early to save,” Koblin says.
Map Your Future
Create a retirement plan when you start the business, and revisit it often. A comprehensive plan can help you address investments, risk, insurance planning, employee benefits, estate planning, tax planning, pensions, profit sharing and succession planning. “A well-designed financial plan will help a business owner understand how much he or she needs to save outside the business for retirement,” Koblin says.
All About Taxes
Investing in qualified plans such as IRAs and 401(k)s can provide tax-efficient methods to save for retirement. Consider a SEP IRA, a SIMPLE-IRA, a traditional 401(k), a Solo 401(k), a traditional IRA or a Roth IRA. You’ll be able to make tax-deductible contributions or pre-tax contributions, depending on the plan you select.
It’s crucial to have a broad diversification of investments. You should not only have a blend of stocks and bonds, but you should also consider investing in real estate, commodities or private equity, for example. Diversifying your investments will provide more flexibility in the future when you need to access your money, Koblin says.
Protect your assets with a buy-sell agreement. This outlines the actions that will take place when you retire or in the event that something unexpected occurs, such as a death, divorce or disability. “A business owner can help accomplish a harmonious transition with a properly designed and funded buy-sell agreement,” Koblin says.