Own a Small Business? Address These Financial Items for Your Retirement

Owning a small business can be an incredibly rewarding experience. But, when you’re your own boss, you also control your business’ destiny — which can directly affect your own life outside of being a business owner. And in order to retire, your planning has unique needs. To help you make sure you’re taking proper steps, here are three key actions worth addressing today.

1. Solidify Your Exit Strategy

According to U.S. Trust’s Wealth and Worth Study, nearly 2/3 of business owners don’t have succession plans[i] — meaning they’ve lined no one up to either buy or take over their business. Without a clear exit strategy, that means they don't have a well-planned path to retirement. In fact, small business owners over the age of 50 have significantly later retirement ages than a typical employee[ii]. Even though they don't have a succession plan, 78% of small business owners plan on selling their business to afford retirement. And they need that business sale to cover up to 60 – 100% of their retirement income, according to the FPA/CNBC Business Owner Succession Planning Survey[iii].

Without a succession plan, funding your retirement by selling your business becomes a dream rather than a goal. To avoid working throughout your entire retirement, we recommend that you solidify your exit strategy, today.

2. Align Your Business Financial Goals With Your Personal Planning

Even though your business and personal lives exist separately, they often support united goals. But, despite their connectivity, only 25% of small business owners meet with professional advisors on a quarterly basis to go over their business and retirement plans3. This means that a vast number of business owners have gaps in their planning strategies. With a coordinated and purposeful approach, you can synchronize your professional and personal life — and make sure they are working toward similar, aligned goals.

3. Consider Key Person Life Insurance

If you have a few years left before you’re retiring from your small business — and you don’t yet have Key Person Life Insurance coverage — consider buying it now. This resource helps protect your business should something happen to your key employees — anyone who is essential to your operations and would direly affect your company if they suddenly can’t perform. When you buy key person life insurance, your company becomes the owner and pays the insurance premiums.

No one wants to approach retirement only to find those plans dismantled because you didn’t protect your business. If a crucial employee passes away or becomes unable to work — and you have key person life insurance — you’ll receive a payout to help cover the gap until you hire a new person or create other financial strategies to keep your business running.[iv] In addition, the policy can provide your business with additional liquidity and savings that you can borrow during an emergency.

Planning to retire as a business owner takes careful attention to details and proactive thinking.

 

Footnotes, Disclosures & Sources

Tip courtesy of IRS.gov

###[i] http://www.ustrust.com/publish/content/application/pdf/GWMOL/USTp_ARTNTGDB_2016-05.pdf

[ii] https://www.sba.gov/content/retirement-recessions-and-older-small-business-owners

[iii] http://www.cnbc.com/2015/04/13/ew-small-biz-have-an-exit-plan.html

[iv] http://www.investopedia.com/terms/k/keypersoninsurance.asp