Owning A Small Business Does Not Mean Your Retirement Planning Is In Place

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Business owners are often so immersed in the day-to-day issues associated with running a successful enterprise that they neglect their retirement planning.

When surveyed, over 70% of all small to mid-sized business owners indicate they have no retirement plans in place at all.

This lack of transition planning could be due to owners being overwhelmed and stressed. It could also be that they believe a myth spread by a few “gurus” that having a retirement, estate, or exit plan will cause a business to lose its edge. Some business coaches go as far as saying that having a business succession plan will cause an owner to make decisions that are not in the company’s best interests. I believe this false assumption could lead to financial turmoil for owners when the time comes to sell.

Business owners who fail to plan their exits are putting themselves, their families, and their employees in precarious positions. They are guaranteeing that when they get ready to leave, the exit will be anything but smooth. While some owners love owning a business so much that they would never consider selling it, others realize that they cannot count on working forever, even if they want to do so.

As a financial educator and retirement designer, I meet business owners who are making critical mistakes when it comes to planning for life after work.

Here are four of the most common mistakes I see business owners make when it comes to retirement planning. Any of these could spell disaster for an owner’s post-work dreams if not addressed by a competent and trustworthy financial professional.

  1. Having no plans at all. I get it. Small business owners are busy people. Many of them don’t have the luxury of having staff and must handle everything themselves to keep their companies running as smoothly, efficiently, and profitably as possible. That’s a tall order, especially during turbulent economic times.

But when you stop and consider the financial difficulties, emotional distress, and frustration that occurs when you do not plan, then isn’t it worth it to spend an hour or two working things out with your financial advisor?

And, with today’s digital technology, you might even be able to do nearly all your planning over the internet without needing to leave your office.

  1. Making the proceeds from selling the business the sole source of retirement income. This is a common mistake and one that is highly problematic. You’d think successful entrepreneurs would know better. Especially since data published by the Exit Planning Institute shows that up to 80% of all businesses put on the market never sell.

Counting on the equity in your home as your primary source of income in retirement is an iffy proposition. Assuming your business will sell, at the price you want, at precisely the right time, is even riskier given there is less than a 3% success rate for business sales.

There are numerous factors beyond an owner’s control, which could make selling impossible or next to impossible. These include pandemics, economic downturns, and too many businesses on the market with not enough potential buyers.

Adding to the dilemma is that many owners are not realistic about the value of their businesses. Failing to get a professional valuation, they list their companies at higher prices than qualified buyers are willing to pay.

3. Not creating multiple income streams using safe money products.

Many business owners are unaware that they can easily create safe, predictable income streams using specially designed life insurance and annuity products. Strategic use of these “safe money” products helps ensure that, if your business sells for less than anticipated, you will still be able to have an enjoyable, peaceful retirement.

If you are successful in selling your company, you can also ensure that the proceeds grow with less risk and fewer taxes by utilizing these uniquely powerful products. Consult your trusted advisor to see the many options available to you.

4. Not contemplating the psychological impact of retirement.  Many business owners and entrepreneurs claim they have built their businesses to sell. They say they look forward to the day when they no longer have to slog into the office and be greeted by bitter coffee and endless problems. The reality, however, is very different when the sale happens.

Nearly all retirement carries with it some measure of emotional distress. Many retirees report feelings of purposelessness or loss after they clock out for the last time.

Business owners, especially those who are used to putting long hours and lots of mental and emotional capital into their companies, are particularly vulnerable to feelings of anxiety and depression. It’s vital that, before you decide to sell, you take time to consider exactly what your life is going to look like without that company you worked so hard to build. Talk to colleagues, friends, and family who have retired about their challenges and how they overcame them to gain a perspective of what it will look like when you are no longer “The Boss.”

There is a lot to consider before you decide to sell and retire. However, having your exit blueprint created ahead of time will go a long way toward creating a more peaceful and enjoyable retirement.

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