Becoming financially secure so you can live comfortably after your career is a goal that many small business owners have. Fortunately, according to a recent Wells Fargo/Gallup survey, 82% of small business owners said they are currently saving or investing money toward their retirement. 76% said they think they’ll have sufficient funds to live comfortably in retirement.
While most small business owners are thinking ahead and saving for the future, there are other areas that should be dealt with. Here are four tips for small business owners to consider as they plan for retirement.
START WITH A SUCCESSION PLAN
Even if your plans to retire or transition your business are distant, planning for your company’s future now will help you long-term. It’s a great idea to create a transition plan while you’re writing or updating your business plan. Whether you want to sell the business, or pass it on to a family member, you need a strategy. A successful transition plan with a schedule and overview of roles and responsibilities will also help.
MAX OUT YOUR SAVINGS
As you map out your retirement savings strategy, take a look at your current finances to determine how much money you can put aside. Once you have a savings goal in mind, set up an automatic monthly transfer into a savings account or retirement plan.
Regardless of the size of your business, a variety of retirement plans can meet your needs. Individual 401(k)s are designed for one-person operations, while businesses with a few employees may benefit from a Simplified Employee Pension Plan (SEP-IRA). Businesses with up to 100 employees may consider a Savings Incentive Match Plan for Employees (SIMPLE IRA). There are also many options available for business owners under the umbrella of a traditional 401(k). Talk with your financial planner or CPA to learn more about each plan and understand the best fit for you. You can also find out more at the IRS’s Tax Information for Retirement Plans Community.
BUILD AN EMERGENCY FUND
In addition to your retirement savings accounts, you need to maintain an easily accessible emergency fund for your small business.
No matter how well you plan, the unexpected can happen. Having cash reserves is an important component of your overall financial picture. Start by putting cash aside when profits are comfortable, and if you can swing it, allocate a portion or all of your tax return into this account. If, and when, you need to access these funds, pledge to put back what you take as soon as possible.
KNOW YOUR BUSINESS’ WORTH
If selling your business is part of your retirement financial plan, then make time for the valuation process. Even if you know the value of your business, only a professional appraiser can put a number to it. Make sure to hire an experienced appraiser and consider starting the process early.
When you are ready to sell your business, determine whether you want to work with a business broker or independently. While there are fees associated with using a business broker, they can often get you a higher price.
As a small business owner, you can take many important steps now to get your finances in order. The key is to get started early and stay committed to your long-term vision and goals.
Call Scott A. Kunkel, CPA PC today in North Richland Hills at 817-498-1040 to have a chat about succession planning.
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Source: Daily Herald