Planning for Retirement as a Small Business Owner

When you own a small business, you are taking your retirement planning into your own hands. Retirement planing as a business owner is very different from that of an employee, and many owners are caught off guard. Not only is the process more complicated, with fewer safety nets, but you will also need to establish a well thought out business succession plan that details how you will sell your business or pass it on to a new generation of family members.

So, how can you successfully juggle these two big goals simultaneously? The very first step is to get in touch with the real challenges that you may be facing. Many small business owners don’t have enough retirement savings. On the other hand, not every small business will find a buyer. A study by the Exit Planning Institute found that while some 4.5 million firms could be up for sale in the next decade because their owners are reaching retirement age, only 20 percent to 30 percent of these businesses will end up selling.

Once you have a realistic understanding of the challenges, you can begin to plan for both retirement savings and your business’ succession.

Tips to Plan for Retirement as a Small Business Owner

When it comes to your retirement planning, here are a few points to consider:

Figure out how much you need for retirement. This step requires you to think about where and how you will live once you are no longer running your business. Some people will eagerly move from a high-cost location to someplace that’s easier on the wallet, but not every retiree wants to do that. If your succession plan (see step 3) calls for you to stay on as a consultant to your business after you sell or transition, you may not be able to. There are free retirement living cost calculators on just about every personal finance website, as well as on the websites of retirement savings companies like Fidelity, Rowe Price, TIAA and Vanguard. Pick one, and run your numbers.

Commit yourself to start saving for retirement right away. This is regardless of your age and regardless of how much you can afford to sock away. One way to ensure that money is going into your retirement account, is to set up automatic deductions.

Research your options. If you own a small business or are self-employed in one, then there are actually several retirement account options to choose from. The most common small business retirement plans include:

The IRS has up-to-date information on all of these plans; just follow the links provided.

At the end of the day, you need to pick the plan that’s best for you and your business with an eye towards where the business is now and where you hope to take it in the future. Many of the above accounts can be professionally managed. Here it pays to do a little shopping around since financial management can vary significantly in terms of service and administration costs among providers.

Write a succession plan. Finally, you need to have a solid plan in place for the transition of your business to another party once you retire. Your small business can actually turn out to be one of your largest assets- but only if you divest yourself from it in the right way. A survey conducted by CNBC in 2015, found that 78% of small business owners intended to sell their businesses to fund their retirement, yet less 30% of these owners had a succession plan in place. Of course, every situation is unique, so you will need to speak to a qualified professional to hash out the details of your succession plan. But, here are a few points to consider:

  • If your plan includes turning the business over to your children and they are not buying the business outright, you’ll need to think about how you will draw your equity out during retirement.
  • If plan on selling the business to one of your business partners or one of your other employees for leadership, you have to decide if you want to still retain ownership while allowing this person to run the business.
  • If you plan on selling the business outright, then you need to have a realistic sense of the true value of the business as well as how the sale may be structured. For example, if the business is worth a significant amount of money, you may agree to a lease to own or other financing arrangement. This means, however, that you will not get the full amount right away.

Bottom line: retirement planning as a small business owner may take a bit of work to figure out and set up. But, you’ll generally be rewarded with a lot of flexibility and control over how you plan for your golden years.

How to Keep Debt Low When You Work on Your Own

When you work on your own, it’s hard to ignore the financial challenges that come along with it- especially when you’re just starting out. There are currently millions of Americans who work for themselves, and many of them find themselves in debt without a safety net. Not only is this an uncomfortable situation, but it can significantly impair your ability to do the kind of work you want to do.

deskYou don’t have to let debt get in the way of your dream of striking it out on your own. Here are three things you can do to keep your debt to a minimum as you go about building your income stream:

1. Pay attention to your cash flow. You need to be very clear about the flow of money coming in and going out of your business. This is particularly important if you are bootstrapping your activities. Consider purchasing an accounting suite, such as Quickbooks, or if your budget is limited, you can also check out the free opensource option GnuCash. These programs generally offer a full range of features, such as financial reporting and billing- all of which will help you to stay on top of your cash flow. Once you are in touch with your income and expenses, you can make financial decisions that stay within your means.

2. Know when and how to hire. As a self-employed professional, you’ll likely reach a point where outsourcing some of your responsibilities will make sense. But when you do, here’s a rule you want to stick to: never bring anyone on board unless by doing so you can anticipate gaining twice that person’s wages in new revenue- whether directly or indirectly. For example, you may hire a freelance virtual assistant or social-media expert who can free up your time for more direct revenue generation. One way to ensure that your hired help will deliver on the additional revenue is to be very clear about this person’s goals and job summary.

3. Use credit and financing responsibly. Even if you are a conscientious boostrapper, there will likely be moments when you will need to tap into outside financing- whether it is in the form of a business or person credit card or even a small loan from friends, family, or peers. Deciding if and how much to take in financing is similar to the decision of whether or not to hire above. You want to be as certain as you can that the financing you receive will either be paid back quickly or will be used to expand your business in a way that very likely will lead to an increase in revenues.

In short, working on your own doesn’t have to leave you drowning in debt. With a little forethought and discipline, you can turn your self-employed work into a lean, mean operation.

8 Reasons Why It’s Good to Be Self-Employed in a Recession

As the economy continues to shed jobs, many have turned to or are considering starting their own businesses. There are numerous benefits to being self-employed- especially in recessionary times such as these. One just needs to know how and when to take advantage of them.

The following is a rundown of some good reasons why self-employment is the way to go in a period of economic adversity:

1. Save money on work-related expenses. Depending on the nature of your business, being self-employed may mean that you are spending less on some of the indirect costs of working for someone else, such as transportation, business attire, or food items.

2. Take advantage of rock-bottom prices. In a recession, the cost of raw materials and supplies as well as real estate and even labor tends to drop. That means lower start-up costs and less over head expenses.

3. Have access to a bigger and better talent pool. A surge in layoffs coupled with a drop in hiring means that many talented, often highly qualified and experienced people will be seeking employment.

4. Take advantage of changes in business relationships and business needs. In order to maintain their competitive advantage, many businesses will be looking to establish new partnerships with those companies that can provide better or more innovative ways of delivering products and services. Being a  new kid on the block may open the doors to such partnerships.

5. Get financing from wary investors still looking for a good return. With a volatile stock market and lower interest rates, investors (especially family and friends) may be more willing to invest in your company.

6.  Economic adversity opens the door to new opportunities and innovation. Consumer needs, habits, and tastes often change during a recession paving the way for opportunistic entrepreneurs.

7.  Be a light in the darkness. Creating, promoting, and growing one’s business under difficult economic circumstances, does not only go against the trend, but it demonstrates a different “side” of the market. This will lead to a win-win situation; the human interest stories will sell and the business will gain publicity as a result.

8. Take advantage of any government policy aimed at businesses. The government’s response (in terms of law making and program development) to the economic slowdown can often mean tax breaks and sometimes new business opportunities.