As a business owner, it’s easy to get so caught up in the day-to-day operations that you forget to think about your long-term goals. Most people hope to retire someday, but a successful retirement doesn’t just happen on its own. It requires years of planning, saving, and strategizing.
When you’re the owner of a business, the need for succession planning adds another layer of complexity to your retirement plan. While it’s easy to postpone this somewhat daunting task, the sooner you start planning for your future, the better off you’ll be.
The good news is, once you understand where you currently are and what you want your future to look like, you’ll have taken a major first step towards reaching your retirement goals. Start with these five simple keys to a solid retirement plan.
1. Assess Your Financial Needs
If you don’t know where you want to go, you’ll have a hard time getting there. That’s why it’s so important to start by thinking about what you want your retirement to look like. Will you stay in your current home, or will you move to the mountains or a beachfront condo? What will your lifestyle look like? And how much will it cost to maintain your new standard of living?
Once you have your retirement vision in mind, it’s time to think about your anticipated sources of retirement income and determine whether it will be enough to cover your cost of living. Don’t forget to include costs your business has been paying, like a company car and health insurance, and consider how you’ll pay for extra expenses like an unexpected healthcare issue. Use this information to figure out how much money you’ll need to have when you retire and what you can do between now and then to reach this goal.
2. Set a Timeline
Understanding how long you have until you want to retire will help you determine how aggressive you need to be with your savings and investment plan. This will also give you an idea of when you’ll need to start implementing your business succession strategy.
It’s often difficult for business owners to step away from the companies they’ve spent a significant portion of their lifetime building. Because you’re both financially and emotionally invested in your business, setting a timeline for retirement will help you come to terms with it well before the time comes. Otherwise, you could end up working until your health or some other issue forces you to retire. Planning ahead and stepping away on your own terms is better for you, your family, and your business.
Knowing exactly how many years you have to implement your plan can help reduce procrastination. It also makes it easier to monitor your progress and helps you get back on track if things don’t go exactly as you planned.
3. Choose Your Retirement Strategies
Most business owners rely on a combination of savings, investments, and some form of income from their business to fund their retirement. Creating a well-rounded retirement plan will help you avoid the mistake of having “all your eggs in one basket.” Here’s a look at a few of the strategies you may want to consider.
Business Succession Planning
To ensure you get what you need out of your business when it’s time to step away, you’ll need to start thinking about succession planning as early as possible.
There are many different exit strategies to choose from. You may decide on selling your business outright, issuing shares of the business, or looking at other succession strategies.
Before you decide which choice is right for you, it’s a good idea to consult with a tax expert or legal advisor who understands how to determine the value of a business and is familiar with the tax and legal implications of each alternative. You’ll also need to consider how much you need your business to contribute to your retirement finances and whether you have a suitable successor.
Diversified Investment Strategy
If you don’t already have a retirement savings plan set up, now is the time to do so. Depending on the structure of your company and how much money you have to invest, you may want to set up a 401(k), SEP IRA, SIMPLE IRA, or another type of company plan. This will allow you to make systematic investments and create a diversified portfolio that is appropriate for your timeline and risk tolerance.
It’s often a good idea to work with a professional financial advisor who can help you choose your investments carefully and keep an eye on your performance.
Some business owners who aren’t ready to fully retire choose to continue working in their business part-time or as a paid consultant. Others sell or gift their business to family or key employees and go on to work as a professional consultant for other business owners. Not only can this help you avoid boredom and ease you into the transition, but it can also provide some extra income. You can use this extra money to supplement your retirement savings or to purchase that vacation home, the boat you’ve always dreamed of, or finally take that “bucket list” trip around the world.
4. Keep Your Eye on the Prize
Once you have an idea of what your retirement plan will look like, it’s time to start taking some steps to turn your vision into a reality. As you move forward, make sure to monitor your progress by regularly assessing your business value and your investment portfolio.
Understanding how changes you make within your company affect your business valuation will help you with your future succession planning. In addition, keeping an eye on your portfolio’s performance will allow you to proactively make adjustments as needed.
There are additional tools that can help you start the research process. For example, it’s a good idea to have a high level understanding of the value of your business before you take more formal steps. GrowGrade can provide quick, free, and accurate business valuations and insights so you can be better equipped to start your retirement planning.