With tax season on the horizon, this is about the time of year that many begin to think about their retirement. Due to various retirement invest vehicles, tax deductions and an examination of the previous year’s finances, looking at retirement, whether it’s in five years or 30 years, has become the standard procedure.
Although all the reports suggest that youth and those approaching retirement will have a difficult time financially in their golden years, there is one group in society that is often negated in studies: small business owners.
There isn’t much polling data or statistics on small business owners and their retirement planning. The closest and newest study that comes to it was published by Scotiabank late last month that found a growing number of small business owners in Canada will lack the adequate retirement income.
The survey discovered that anywhere from eight percent to one-quarter of Canadian small business owners will never close up shop and retire. One of the reasons consists of the fact that these entrepreneurs enjoy what they’re doing, but financial experts say another important element is that it’s difficult to determine how much a business is worth in today’s economy.
A different study authored in Ontario last year by Meridian entitled “Small Business Banking in Ontario Study” found that 21 percent of small business owners say retirement is their biggest concern – 22 percent have said the economy.
“There’s a lot of uncertainty about how much a business will be worth when it’s time to retire,” said Gord Brost, the bank’s district vice-president for southwest Nova Scotia, in a statement. “A lot hope their business sale will fund their retirement, but they need target dates. They need a strategy.”
Industry professionals argue that small business owners have to establish a plan that includes more than just selling the enterprise. Retirement planning needs to consist of preparation, diversification, investing and other variables to ensure a safe, secure and prosperous retirement. Without conducing the proper research and due diligence, small business owners might lose out on a lucrative nest egg.
Here are five important tips for small business owners to consider in order to accomplish their retirement objectives:
If you have yet to begin planning for your retirement then start now. It can be quite understandable that you’re spending all of your time, energy and resources into your small business, but it would be a mistake to avoid establishing a plan for your winter years.
Starting to save for retirement is never easy, especially in today’s difficult economy, but doing so now will help stave off a headache down the road. Look at your investment options, keep track of your earnings and always determine how much your small business is worth each year. You’ll be happy you did.
Once you figure out when you will retire, it’s important to then conclude how many sources you have for income during the remainder of your retirement. A lot of entrepreneurs make the mistake of thinking the sale of their business will fund their whole retirement. However, it would be prudent to look at an array of options, such as retirement plans, the funds from the sale of your business and savings.
Sometimes you might be overworked that you will likely forget to put money aside for your retirement. This is why you should inquire with your financial institution on creating an automatic savings plan of whatever amount you wish that will be transferred each month. Saving habitually will aid you in the long-term.
If you’re a small business owner then you will understand first-hand of the numerous taxes, regulations and rules that have been imposed by federal, state/provincial and local governments. To ensure you understand all of your options, sit down with a certified, trusted tax professional and produce a strategy by looking at possible exemptions and tax implications when you hit retirement.
When you place a listing of your business on the market, it’s important to discuss with more than just one individual. Never just accept the first offer. Instead, sit down and speak with a variety of potential buyers, lay out the specific details of the company and negotiate the multiple bids.
It’s also important to remember that you will likely not be paid fully in cash. Financial professionals warn that small business owners could expect to receive payments over a three, five or seven-year period that total up to the value of the business – there are possible risks of accepting these terms, too.
Are you selling your business soon? Hitting retirement? Share your concerns, suggestions and ideas in the comment section.
Image via Freerange Stock.