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13 Finance Experts’ Tips To Help Business Owners Prepare For Retirement

From: Expert Panel Forbes Councils Member

Founding and owning a successful business doesn’t necessarily insulate someone from potential financial difficulties. Indeed, balancing the needs of the business with personal financial needs can be an ongoing challenge. And like everyone else, business owners need to develop a plan to provide for and protect themselves and their families in retirement.

No matter the stage your business is in, it’s always wise to start planning for the future. Below, a panel of 13 Forbes Finance Council members shares tips to help business owners prepare for retirement.

1. Don’t assume the sale of your business will provide enough of a nest egg. 

Retirement implies no income from working, therefore necessitating a “nest egg” that either produces investment income or is drawn down over time. It’s natural for business owners to assume that their nest egg will come from selling their business. The problem occurs when the business can’t be sold for what the owner needs to retire. This risk is mitigated by consistently saving for retirement. – Aaron Spool, Eventus Advisory Group, LLC

2. Plan to augment any ongoing income from selling the business.

Keep in mind that the deal you ultimately make to sell your business might involve you receiving periodic payments from the buyer rather than a lump sum. In that case, you should plan your investment portfolio strategically so that the payments you receive from the sale of your business are adequately augmented with other income to give you the financial comfort you desire in retirement. – Brian Slipka, True North Equity Partners

3.Create a business succession plan.

Business succession planning is an important tool to safeguard a business from life-altering events. Divorce, disability and death are some examples of events that could drastically impact a business. Having the proper planning in place before any of these events occur could drastically help in navigating any adverse reaction that may arise. – Russ Zalatimo, HUDSONPOINT Capital

4.Work to increase your profit percentage.

Use the percentage of total revenue method to identify your current profit percentage. Work first on increasing company cash flow while also increasing the profit percentage. Once you are comfortable with your profit percentage, be disciplined enough to fund a rainy-day account for the business. Only then take a percentage of profits and invest it in total market ETFs, real estate and other business ventures to build income streams. – Ryan Marto, M. Jesus Construction Corp.

5. Set aside some of your gross revenue as retirement savings.

Always pay yourself! I have found one wise move is to budget a percentage of gross revenue for a savings or retirement account—then, pay that account first. By budgeting this way, you can better manage your P&L, as you can simply view this as another line item of expense. Too often, owners make a business plan but don’t periodically review and work that plan. “Plan your work, then work your plan!” – Mike Hardwick, Churchill Mortgage Corporation

6. Structure your 401(k) plan so that you can participate.

Make sure the company 401(k) plan is structured in such a way that the owner can participate. Regulations surrounding highly compensated employees can often prevent the owner from participating (depending on the type of employee). Having a safe harbor 401(k) plan from the beginning will allow the owner to maximize their participation in the company 401(k) plan. – Kelly Shores, GCubed, Inc.

7. Keep your business and personal finances separate. 

Do not try and save your business financially by leveraging your home or your child’s college fund. Remembering that businesses have a life cycle is critical when nearing retirement. Letting go of your life’s work can be the most difficult thing for a business owner, so if you can sell your company, sell it and let the new owners give it a new life. – Joseph Orseno, Tiltify

8. Invest in non-business-related assets.

Build a lifeboat of assets held outside the business (ideally in a family trust) that are safe, tax-efficient and not correlated to the movement of broader market indices or the sector of the business itself. Get as many chips off the table as possible during periods of above-average profits so that you are not solely dependent on liquidation of the business to fund retirement. – Heath Beam, Singular Private Wealth, P.C.

9. Set up an estate plan and a life insurance policy.

I would pay attention to two key things: a professional estate plan and life insurance. The estate plan is based on reviewing wills, powers of attorney, estimating taxes and some family business planning. As for life insurance, it is easier when the key business players and partners are insured; then the debt and collateral coverage are protected. – Dmitry Dolgorukov, HES FinTech

10. Develop a long-term tax strategy.

Have an exit strategy that incorporates financial planning and tax strategy. Optimizing your long-term tax strategy can have a major influence on how your finances play out over time. A solid tax strategy can have a substantial impact on one’s ability to grow and sustain wealth, so it can not only impact your finances during retirement but also your ability to retire in the first place. – Julio Gonzalez, Engineered Tax Services Inc.

11. Benchmark your progress toward retirement goals.

Have a plan, and make sure you prepare for the unexpected and benchmark yourself on your way to your retirement goals. Having insurance for yourself and your key employees is vital. Making sure you’re diversifying your retirement savings to things beyond the value of the business is also wise. What the business is worth to you today isn’t what you may be able to get for it in the future. – Matthew Cuplin, Midwest Financial Group

12. Sell off just a part of your business.

If possible, sell a minority of your business that would provide enough in a long-term retirement account to support your family’s lifestyle if the business itself fell on hard times. This strategy allows you to, as they say, “take some chips off the table” and diversify your holdings from being 100% in your business. – Bill Keen, Keen Wealth Advisors

13.Explore passive income options.

The key here for me is to consistently and periodically move assets from my business into tangible passive-income-producing assets. Over time, my passive income will cover my salary and overhead expenses so that I am no longer personally dependent on my business income. This means I can either sell the business or hire management to run it for me and be at no personal financial risk. – Jerry Fetta, Wealth DynamX