Selling your business to fund retirement shouldn’t be your only retirement plan. Owning a business is the American dream come true. It brings well-deserved feelings of accomplishment, but does it bring a satisfying retirement? Playing devil’s advocate here—did you decide to use any of your cash flow to fund your retirement investments?
According to CNBC, 78% of small-business owners plan to sell their businesses to fund 60%—100% of their retirement. As a result, the biggest challenge for small-business owners is diverting income from supporting the business to funding retirement.
If you want to invest now and withdrawal later:
Choose the right retirement plan and stick to it. Options for investing include programs like a SEP IRA, Solo 401(k), SIMPLE IRA, Roth IRA, and a 401(k). If you stick to your contributions, then all will grow your money. This is money to rely on come retirement day. Start by investing a bit of your income and hire a professional to manage your plan.
Opt for diversification and auto deposits. When it comes to retirement savings for business owners, opt for multiple opportunities. If you choose to launch SEP or SIMPLE IRAs, don’t be afraid to start your own personal traditional or Roth IRA. Doing so diversifies your portfolio. Additionally, set up a plan that makes auto deposits. This helps avoid the temptation to skip investing and put your money back into the business.
If you choose to use the money from the sale:
Get an accurate estimate of your business value. Your business value is determined by reviewing tangible assets, employees, future cash flow potential, and the value of comparable businesses that have recently sold—much like when you prepare to sell your home. Take your estimate and compare it to the dollar amount you believe you need to retire comfortably. Doing this reveals if selling can fully fund your retirement. If not, you need a contingency plan.
Plan now for your future sale. You need a plan today that identifies your ideal buyers. I should also outline any changes necessary to make your business attractive to future buyers. Changes should include equipment upgrades, staff changes, financial improvements, and identifying business growth opportunities. All of these make your business more appealing to the right buyer.
Banking on the sale of your business to fund your retirement shouldn’t be your only plan as a small-business owner. There’s no crystal ball to display the future profits from the sale. Our team of financial professionals can show you how to invest now for guaranteed profits during your retirement. Chances are you have questions, and we’re ready to help.