If you own a small business, you probably laugh at the notion of a “9 to 5” workday. Unfortunately, many small-business owners work so hard, and are so focused on the “here and now”- increasing sales, controlling costs, attracting new customers, etc. — that they forget to plan for their own retirement and for the fate of their business.
Don’t make those mistakes. No matter how hectic your schedule, take the time to set up a retirement plan for yourself and a succession plan for your business.
Let’s consider retirement plans first. These days, small-business owners such as yourself have several good retirement plans from which to choose as well as other options that may provide even more opportunity. If your business has no employees except you (and possibly your spouse), you can choose a SEP IRA, an “owner-only” 401(k) or an “owner-only” defined benefit plan. If you have employees, you might want to explore a SIMPLE IRA or a “Safe Harbor” 401(k). All these plans have at least two things in common. First, your earnings can potentially grow tax-deferred. Second, you can fund any of these plans with virtually any type of investment: stocks, bonds, certificates of deposit, government securities and more. You can even create a mix of investments to reflect your time horizon and risk tolerance.
Beyond these similarities, though, these plans have different requirements and features, so, to find the one that’s right for you, consult with a financial advisor who is experienced in helping business owners.
Once you’ve established your retirement plan, it’s time to think about succession planning. Here are a few general recommendations to keep in mind:
• Always know what your business is worth. Your succession plan may involve either selling the business or passing it to your heirs, so it’s essential you know the sales price or its inheritance value. Once you have this information, you can help draw up plans for selling the business or helping your family pay estate taxes.
• Integrate your succession plans with your estate plans. Many small-business owners just plan on leaving the business to their spouse - a move that could cut off other heirs from an inheritance. This can be particularly troublesome if all your net worth is tied up in the business - a situation you’ll want to avoid by having some outside investments, in addition to one of the retirement plans mentioned above.
• Include key employees in your planning. If you’d like to keep some key employees on after the business is transferred, let them know your plans while you’re still in charge. Of course, if you plan on selling your business to one of them, you’ll need to invest and organize the proceeds in such a way that they can be efficiently passed on to your family.
• Plan for “what if?” A good succession plan must also include plans for contingencies. To cite just one possible complication, what if you want to leave your business to an adult child, but that child dies before you? You may need to take many “what ifs” into account when you construct your plans.
You invest your heart and soul into your business. To protect that investment, work with your financial, tax and legal advisors to create the appropriate retirement and succession plans. Even as busy as you are, it will be time well spent.
Cardella is a financial consultant for Edward Jones in Hinesville.