As a small business owner it is logical to think that your business will provide for you in retirement. While that may be the case, it’s not a good idea to put all your eggs in that one possibility.
3 THINGS THAT COULD HARM YOUR BUSINESS
What if the business ceases to exist? There are three key areas that could harm your business.
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Your competition could develop a better more efficient process. Or, you could grow too fast. Did you know that growing too fast could put you out of business? If this happens to you and you don’t have the right people and processes in place, guess where your customers will go – to the Competition.
What about technology? Technological changes could essentially render your business obsolete.
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Or have you given any thought to regulation. The government is your friend, right??? That was sarcasm!!!! Government regulation could essentially wipe your business profit and equity right off the table.
DIVERSIFY AWAY FROM THE BUSINESS
I’m not saying that you can’t plan to have your business provide for you, but what I am saying is that you should have a Plan B in order to minimize the risks listed above. Diversify…..
Don’t invest every dime of profit back into your company. Bring some of this money into your personal life. This will help you later on when it’s time to retire.
STEPPING INTO RETIREMENT
Don’t rely on rules of thumb such as “you’ll need 80% of your pre-retirement income in order to be able to retire”. This is hooey.
You need to know (or at least have a very good idea) what you will be spending in retirement. You need to have an idea about what sources and amounts of income you will have (i.e. Social Security, business, investments, pensions, etc.).
You need to project your tax bracket, health care costs, and inflation. There are so many factors that come into play that it’s worth it to do a full blown analysis, not just back of napkin math.
TO SELL OR NOT TO SELL – THAT IS THE QUESTION
Since it is a reality that your business could provide a substantial portion of your retirement, it will be important for you to consider succession planning.
How and when will you step away? Who will take over the business once you’re gone? Will you sell your business to a family member, a trusted employee, a competitor, or someone else?
What is the value of your business? Is there anything that can be done to increase the value of your business?
These are not questions you want to answer when you retire. You must give some thought to this well before you retire.
There are many other factors to consider, but the bottom line is that it’s never too early to start planning for your transition from the business to retirement.
Stay tuned as we will tackle many of these aforementioned issues in upcoming posts.
Brad E.S. Tinnon
CERTIFIED FINANCIAL PLANNER
image used courtesy of nerovivo