For many small to midsize business owners, retirement doesn’t seem realistic. In fact, new research by SCORE found that 34% of business owners don’t have a retirement savings plan and 40% aren’t confident they will be able to retire before the age of 65. How to save effectively before hitting a certain age often escapes a business owner’s mind, pushed aside by a focus on supporting customers, clients, staff, vendors, spouses and children first. Additionally, the blood, sweat, money and tears put into a business oftentimes makes it that much harder to plan on parting ways, but laying the groundwork for retirement is absolutely necessary.
The tried-and-true method of building wealth is the employer-sponsored retirement plan. Holding a vast proportion of wealth today, the deferred compensation model has led to the successful savings and retirement of countless Americans, but what about those who administer the plans? Small-business owners should take a step back from their daily responsibilities and follow some simple steps to maximize their retirement benefits with proper planning and execution.
Know the numbers. Getting a firm grasp on business and personal expenses can be nerve racking, and often creates anxiety in the answers that are found. On the flip side, having an honest idea of the financial situation allows a small-business owner to move forward with confidence. Just like any other goal, it’s hard to get there without knowing where the starting point is. Key indicators may include how much the business owner pays him- or herself, annual retirement funding amounts and income needs down the road.
Develop an exit strategy. Small-business owners tend to not come up with an exit strategy for many reasons, including that with a stable income and staff members running the company, they don’t have confidence in an exit plan or they think an exit isn’t the answer. Unfortunately, they’re wrong. Every small-business owner should set the benchmark of a business sale to be on the horizon. Maybe they don’t come into liquidation in the form of a buyout but, in the process, they will have worked toward creating a well-oiled machine that, ideally, provides excellent service and repeatable outcomes. Whether it’s a check upfront for that exit or a monthly check for business owners to step back and enjoy their personal time, they can realistically hope they will never “die at their desk.”
Set up a comprehensive retirement plan. A proper retirement plan, and in this case an employer-sponsored deferred compensation plan, can make enormous differences in a small-business owner’s annual savings, tax deductions and employee satisfaction. By working with a CPA, an advisor and often a third party administrator (TPA), they can likely create a highly effective savings and tax strategy that fits the needs of their business and themselves. Options include a Solo(k), Defined Benefit Plan, SEP or SIMPLE, and there are options for businesses of every size. If they don’t have employees, there’s a plan for that, too.
Keep it simple. This reigns supreme in the world of investing, accounting and proper planning. If a small-business owner encounters a proposal that is sexy, shiny and seems too good to be true, more often than not, it is too good to be true. There is no “one trick” to model their finances after the world’s wealthiest people. They are often over-promised and under-delivered when it comes to their needs and end up paying for goods and services under the guise that one will fix all their problems. Avoid the so-called “experts” selling programs or books and lean into the professionals who know the business owner’s real situation.
Depending on the size of the business, owners may find they have very simple needs. Hiring a trusted advisor or a team of advisors is an absolute must. With success in mind, business owners should place more value on the advisors around them than the cost to sort out items such as accounting, investing, risk management, retirement planning and legal. Lean into trusted professionals that know the business and the owner’s goals. With the right help, small-business owners can tune out the “noise” of the financial and business world, narrowing their focus on the things they mastered and delegating those in which they have no expertise.
Jacob Guttman, FSCP®, is the president of Phoenix-based Rosevest Financial and acts as a personal chief financial officer by providing comprehensive and intentional financial solutions. Rosevest Financial is a client-centric wealth management practice fueled by creating strategic, long-term financial planning and providing peace-of-mind along the way. Securities and advisory services offered through Geneos Wealth Management, Inc. Member FINRA/SIPC.