Thoughts on retirement for the small business owner

Posted by on October 12, 2009 · Leave a Comment 

By Barrett Haus

The day to day requirements of keeping a successful business running smoothly and profitably sometimes leaves very little time for the business owner to think about retirement planning. However, the inevitable day arrives when a business owner decides to start gearing down or, in some cases, get out of their business altogether. Like many other endeavors planning is of the essence and Retirement is no different. This article briefly touches on two of the main avenues a business owner uses to acquire funds needed for retirement. The first and most obvious source is the net worth of the business itself. Just like any asset (real estate, etc.) there should be thought given on how to maximize the value of your business and the attractiveness for someone to potentially acquire it. Many factors determine the attractiveness of a business to own (type, profitability, ease of operation, etc.).

There are a few key steps a business owner can take to make their business more attractive to a prospective buyer. First and foremost is proof of profitability. Unfortunately many business owners cut corners on documenting the financials of their business (accurate tax returns, financial statements, etc.) and then when a buyer says “show me the money” there is no proof! Another step for businesses with key employees is to plan ahead for retention of those employees when a sale occurs. The new owner is going to need the experience, expertise and talent key employees have. The third step is to ensure all leases (space, equipment, etc.) and other contracts required in the operation of the business allow for ownership changes. In addition, extending leases for office space, etc. will help the prospective buyer feel more comfortable about a smooth transition.

The second avenue for a business owner to acquire funds for retirement is through the use of qualified retirement plans (401k’s, IRA’s, Pensions, etc.). Qualified retirement plans offer tax-deferred savings to encourage participation. Our federal government has promoted these tax-deferred retirement plans to encourage us to save for our own retirement. It is a not so gentle hint that social security should not be relied on as a main source of money for retirement. The ability to reduce your current tax bill and save money for retirement is a great way for the business owner to plan their financial future! The rules governing some of these plans can be complex and selecting the right one is very important so consult your tax and investment advisor. That’s all the space I have today, but in a future article I will explore each one of these avenues more thoroughly.

Barrett Haus provides small business CFO solutions and investment advising through his companies Haus Financial Solutions, LLC and Empire Financial Group, LLC. He can be reached at 407-222-5120 and offers a complimentary initial consultation.

Filed under Finance & Accounting