Becoming financially stable so you can live comfortably in retirement is a goal that many of us spend our entire careers working toward. According to a recent Wells Fargo/Gallup survey, 82 percent of small-business owners said they are saving or investing money toward their retirement, and 76 percent said they think they’ll have enough money to live comfortably in retirement.
While it’s great to see that most small-business owners are thinking ahead and saving for the future, other areas also should be addressed when preparing for retirement. Here are four tips for small-business owners to consider:
• 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 in the 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 or an existing employee, you will need a clear strategy that outlines your plan.
• Max out your savings. As you map out your retirement savings strategy, it’s helpful to take a long, hard look at your finances to determine how much money you can afford to put aside each month. Once you have a savings goal in mind, set up an automatic monthly transfer into a savings account and/or self-employed retirement plan. Individual 401(k)s are designed for one-person operations, while businesses with a few employees may benefit from a Simplified Employee Pension Plan, and businesses with up to 100 employees may consider a Savings Incentive Match Plan for Employees. There also are many options available for business owners under the umbrella of a traditional 401(k). Talk with a financial planner or accountant to learn more about each.
• Build an emergency fund. No matter how well you plan, 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 you need to access these funds, pledge to put back what you take as soon as possible. An emergency fund should have enough to cover between three to nine months of your basic fixed expenses.
• Know your business’ worth. If selling your business is part of your retirement financial plan, then you need to make time for the proper business valuation process. Only a professional appraiser can truly say how much your business is worth to an outside buyer. Make sure to hire an experienced appraiser, and consider starting the process early. If the value is less than what you expect, having time on your side to make adjustments in your business and then requesting an updated valuation could increase the worth.
There are many important steps you can take now to enjoy a comfortable retirement. The key is to get started early and stay committed to your long-term vision and goals.
Lester Romero is a small business manager at Wells Fargo Southern Nevada.