Retiring as a Small Business Owner

Rob Glownia |

There are over 30 million small businesses in the United States. Many people start their own business to become their own boss and to take control of their schedules, career goals, and finances. While it can be incredibly rewarding to be the owner of a successful business, many entrepreneurs fail to adequately plan for their own retirement.

As a business owner, you may rely on selling your business when you’re ready to retire. Alternatively, you may assume that a family member will take the reins in exchange for a share of future revenue. However, it's risky having all of your proverbial eggs in one basket—and you shouldn’t wait until you’re near retirement age to think about your financial plans.

At Glownia Financial Group, we work with many small business owners and help them prepare for retirement. Here are some topics we typically discuss with our clients:

Evaluate Your Retirement Needs
First and foremost, you should think about the income you’ll need to live comfortably when you're done working. In other words, what type of retirement are you envisioning and what are the costs associated with that new lifestyle? 

You should also have an idea of what your living expenses may look like when you’re no longer able to expense certain items to your business. For example, if travel costs or other subscriptions were paid with company dollars, you'll need to consider those amounts coming out of your personal savings if you'd like to continue receiving those benefits.

On the bright side, there may be new sources of income to help offset your retirement lifestyle. For example, if the sale of your business is structured with installment payments, it may not be as disruptive in terms of your overall cash flow. Furthermore, you should consider social security, retirement assets, or other sources of income when calculating your monthly inflows.

At Glownia Financial Group, we provide our clients with dynamic planning tools to help them visualize their expected cash flow throughout retirement, accounting for the items mentioned above.

Open a Diversified Retirement Savings Plan
If you're a small business owner, you've most likely reinvested many of your profits back into the business to promote future growth. However, we typically advise our clients to consider saving a small percentage of revenue as a backup plan. Having multiple retirement nest eggs in place means you’ll be financially secure in case of an unplanned early retirement from your business.

Paying into a 401(k) or IRA as a small business owner can financially benefit you now and in the future. Saving money in a retirement account allows you to lower your tax bill according to how much you contribute. Those funds can grow tax-deferred until you start to make withdrawals during your retirement.

There are a few different options for retirement plans for small business owners. If you’re the sole employee of your business, you can choose a SEP-IRA or Solo 401(k), both of which offer tax-deductible savings. For small businesses with less than 100 employees, a SIMPLE IRA or 401(k) allows you and your employees to make pre-tax contributions to your plans.

Increase the Value of Your Business By Making Yourself Obsolete
While saving for retirement is a good option for a small business owner, you may also want to make sure that your business is still viable if you leave. If your business can’t run without you, it’s possible it may have a decreased value if you decide to sell and it may be hard to keep afloat if you pass it down to a family member. Instead of spending all of your time working within your business, you should focus time working on your business to make sure that it can run smoothly without you. If your business model doesn’t allow the business to run without you, there’s even more reason to make sure you have a solid retirement plan in place.

Talk to a Financial Professional
At Glownia Financial Group, our goal is to be your most trusted advisor and to provide actionable recommendations about your financial situation. Like many of our clients, we also manage a family-owned small business and can relate to the opportunities and challenges you might be facing. Specifically, we can help you figure out how much you should save for retirement, which retirement plans will work best for your small business, and how to protect yourself financially through the sale or transfer of your company.