Why Small Business Owners Shouldn't Neglect Retirement Planning

Why Small Business Owners Shouldn't Neglect Retirement Planning

April 15, 2023

No matter how much effort we put into the various small businesses we run, it is imperative we also prepare for our own financial security.  We at Green Valley Tax Service, Inc. will get you started on the right path. Give us a call for, complimentary consultation. Too often, we get lost in the many aspects of marketing, accounting, management, or development that we forget we will one day need to walk away and rely on the assets and financial accounts we have set aside. 

Retirement planning is a crucial aspect of financial planning that many small business owners tend to overlook. We feel we do not have the time, money, or resources to focus on our personal finances. Instead, throwing all we make back into the company – win or lose. 

Neglecting retirement planning can have massive consequences for small business owners, both professionally and personally. That is why we thought we would quickly cover why this aspect of your financial health is critical to your future comfort and security. It doesn’t mean you are giving up on your company or directing any less emphasis on the importance of future growth. It means you are balancing the needs of your business with the needs of yourself and your future family. 

The Consequences of Neglecting Retirement Planning 

Financial security is not something you slip into by accident. It takes forethought and actionable steps based on a well-thought-out plan. Without these tools, you may find yourself selling your small business at one stage, hoping that will be enough to take you over the threshold of retiring with luxury. Only about 34% of small business owners have a functional retirement plan. The rest may suffer from not saving enough or thinking they can rely on Social Security payments to make ends meet. 

Without the best plan for your retirement in place, you run the risk of having to work later into your golden years. That can drastically impact your personal lives and relationships, often causing you to sell your business at a far lower value than market rates to compensate for the situation. 

No one should have to make such sacrifices when they are facing future decisions about their later years. Between raising grandchildren, vacationing, or even just not having to worry about grocery bills, your retirement planning is essential to your happiness as a human being. 

The Challenges of Retirement Planning for Small Business Owners 

There are multiple unique challenges and roadblocks that most small business owners face when considering how to best start retirement planning. One of the biggest factors is the unpredictability of business income. Small businesses operate in a market where consistent cash flow can be a problem. Owners may not know if they can fit a retirement plan into a model where there is no guaranteed income. Even when those resources do become available, most small business owners may not have access to the same benefit level of retirement options as employees working for larger companies. That could include vehicles like a 401(k) plan or employer contributions to an established retirement fund. 

The other significant issue to consider is that many small business owners have a large amount of their personal net worth tied up in the company they are trying to help succeed. It can be a major roadblock to diversity investments when you do not have the asset flexibility you need to generate savings outside of your company structure. 

That all being said, there are still ways to get around these issues if you work with a qualified team of financial advisors and tax preparation experts. 

The Benefits of Retirement Planning 

Even with these challenges, you still must pour effort into proper retirement planning. This is because it means more than simply enjoying a more comfortable retirement period. With the right plan in place, you are better equipped to achieve your personal and professional goals. 

At some point, you will need to entertain an exit strategy and legacy appointment for your small business. Success planning is much easier when you know you have a solid retirement waiting for you as you pass the keys to the kingdom to someone else. Proper retirement planning also helps mitigate your tax liability, ensuring you have more money to fund your children’s education or enjoy a bit of international travel. 

It helps if you follow some practical tips for retirement planning to get started. These will better your efforts as a small business owner, so you are better prepared later in life. They include: 

  • Start Early: the sooner you attack a retirement plan, the better. You should be thinking about retirement planning as soon as you start your business. This way, you are consistently contributing at least the bare minimum, so compound interest can work its magic.
  • Understand Options: retirement planning is unique to the individual. There is no single financial product that is perfect for every small business owner. You need to get a clear view of what options are available, like a Solo 401(k), SEP IRA, SIMPLE IRA, and more. That is why hiring a financial advisor is critical to your retirement success.
  • Set Realistic Goals: don’t expect blood from a rock. You need to have tangible goals in mind and then set up your planning to match or exceed those goals. This should include your business's potential growth and how it will impact your future retirement planning.
  • Diversify Investments: do not put all your eggs in one basket. With so much of your net worth tied up in your business, it is critical to diversify your investment portfolio, so you have enough retirement savings outside your business operations.
  • Maximize Contributions: any chance you get to max out the money you pour into your investments – do it! This not only improves the robustness of your investment portfolio but also lowers your tax liability, creating more room for pre-tax wealth.
  • Monitor Activity: keep a close eye on your retirement planning by actively monitoring your savings, accounts, investments, and more so you can adjust as needed. You also want to compare that to your business’s overall financial health, so you are accounting for trends in the marketplace. 

Responsibility for personal Financial Health 

The fact is every small business owner has just as much obligation to their personal financial health as they do the operational structure of their business. You need a quality retirement plan so you can avoid the standard error of running out of funds when you age. 

Our team at Green Valley Tax Services is here to help you understand the ins and outs of proper retirement planning. Our financial experts can walk you through a wealth of options to choose from and create the planning and structure you need for future success. Give us a call today, and let’s schedule a time to discuss your personal goals and eventual plan for your business when it comes to retirement planning. 

As a small business owner, you understand the need for planning. You have to manage people, inventory, expenses, and so much more to keep your business afloat. Why not let our team of experts relieve some of that stress, so you are better equipped to handle the financial reality of your future years? Let’s build a retirement plan perfect for your unique situation.