The responsibilities of owning and operating a small business can be overwhelming at times. Every decision – from choosing printer paper to putting together a budget, creating a business plan, and looking for funding – is yours and yours alone. With so much to act on and think about just to keep your business in the black, it’s easy to shunt aside longer-term planning
Still, there are long-term planning issues that are critical to your personal success as a small business owner, and they aren’t going away, particularly when it comes to planning for your retirement. You don’t have the luxury of an employer offering a 401(k) or pension plan, complete with a selection of appropriate investment vehicles, to ensure your financial future. It’s all up to you.
Too many small business owners avoid the crucial elements of planning for their futures. Manta, an online resource dedicated to helping small businesses promote themselves and gain new customers, recently a surveyed nearly 2,000 small business owners. Manta found that over a third (34%) of those surveyed don’t have a retirement plan. Among this group, the reason most commonly cited (by 37% of those respondents) was that they’re simply not generating enough revenue to save. Another 18% of the business owners without retirement savings are looking at selling the businesses as the retirement plan.
A similar study conducted by the Guardian Insurance Company offered even more marked results, with 35% of small business owners surveyed reporting that they actually startedtheir businesses to fund their retirements. In answer to a separate question, 35% of respondents said they were depending on income from the sale of their businesses to retire.
We’re all familiar with the old adage about the dangers of putting all your eggs in one basket, and this is a textbook example. There’s plenty that could go wrong in this scenario. A business will only sell if it can continue to operate as a going concern. Is there a succession plan in place that will ensure business continuity? And don’t forget market conditions, which determine if a business can be sold at an attractive price. The last thing any entrepreneur wants is to be forced into divesting at a fire-sale price. If you don’t have a retirement plan, you could easily find yourself forced to sell under less-than-optimal circumstances.
There are a number of retirement solutions that can help you secure your future and that of your employees, but the decision-making process can be challenging. Even retirement and investment professionals can have a hard time determining the best option for a small business owner. Here are a few questions to ask yourself before deciding on a retirement plan:
- Do you have employees or expect to in the future?
- Is it important that employees are able to contribute to a retirement plan?
- Is your priority higher contributions or ease of administration?
- Would you like plan contributions to be deductible as a business expense?
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