To be successful as a small business owner, you generally need to pour every ounce of yourself into your business. You need to remain hyper-focused on succeeding every day, with long-term planning revolving almost exclusively around the viability of the business. After several years in business, when a more productive model is in place and profits are beginning to grow, then some small business owners begin to think about current income, personally, as well as longer term income and retirement planning. But for many, that last piece, the retirement piece, is ignored. For a business owner, retirement often feels like something a million years away and as such putting money toward it that could be used to grow the business doesn’t make sense.
Unfortunately, this mindset leaves older small business owners in a difficult place. While the business may be a viable asset which can be sold when the owner is ready to retire, that may not be enough to comfortably retire. Or, if the business is based on a specific skillset or network of connections, or if the market changes, the business may no longer hold value. There are too many reasons to list why a successful business of twenty or thirty years may not have value, which means the business itself is not a practical retirement plan. And while the gamble could pay off, the risk of it not is real.
So with no pension, no 401k, no guarantee of any value to a business, and no social security (as many small business owners are ineligible), it is up to the business owner to safeguard him or herself against poverty in retirement. And while there are a number of ways to do this, such as an IRA, a SEP IRA, a Simple IRA, or even a solo 401k, they all start with putting money aside today so you can retire tomorrow. This goes against conventional business wisdom, which says you should put every penny you earn back into your business, but when you’re ready to enjoy your golden years you will thank yourself.
Talking to a financial planner or a CPA about your specific situation is a good first step. Here at PFS we have taken the first steps toward retirement planning and have begun looking into safe ways of moving forward ensuring the companies growth and financial viability. Financial planners can help you find strategies which maximize tax savings, maximize growth, and limit the impact to your current cash flow, while ensuring you can retire one day. But know that, no matter what you do, you need to start saving early if you want to retire comfortably.