As a business owner, your approach to retirement planning is inherently complicated. Traditional retirement planning for non-business owners focuses only on narrow aspects of the retirement formula, such as investing non-business assets, insurance or maximizing pension and retirement benefits. However, when planning for retirement, you must include how to cultivate, grow and harvest your business to achieve personal goals.
In reality, most small business owners do not have a retirement plan that includes accurate valuation of their business, and yet 70 percent are counting on the sale of some or all of their business to fund part of their retirement. According to SunTrust Business Owner Research, many business owners simply plan to work longer and harder. To achieve your retirement goals, you need to work with advisors that integrate your business planning with personal wealth planning.
If you’re over the age of 50, begin with these four key questions:
You can build the value of your business, so you can sell or transfer it easily at a good price by growing profits, strengthening cash flow and improving management processes. By looking at industry and sector comparables and identifying the value levers that drive sales multiples, your bank can help you build a formula for estimating and managing the value of your business for purposes of retirement and business planning.
You can potentially increase the price a buyer pays for your business by multiple times cash flow by actively improving drivers of business value. Intangible drivers such as brand differentiation or innovation success can increase business value, while tangible drivers can include more structural assets such as cutting edge equipment or flexible manufacturing space. Ultimately, a regular valuation is an important input in succession and estate planning.
Retirement planning is very different for business owners for several reasons:
You should work on a retirement strategy with an experienced advisor who understands your business and who can help grow your business. An advisor will work closely with your bank and other financial partners to accurately project and include tax shelter planning and succession and estate planning into the timeline.
Portfolio diversification and risk management also can be more challenging for business owners, because concentrations can limit the impact of how far assets will take you toward your ultimate goal. You don’t want an unexpected downturn in the business cycle to stall retirement plans. Your banker and an experienced advisor will create portfolio and credit plans that protect your retirement planning from unexpected concentrations surrounding your business assets.
If you are like most business owners and plan to live off your business income as long as possible, consider ways to leverage yourself by bringing in a partner or developing management talent. Leveraging management will allow you to work longer in your business without burning out and perhaps spend more time doing the things you love. Owners indicate that leveraging employees and others is the best way for owners to generate more free time.
Building management depth can also help grow the value of your business, if you do plan to sell or transfer. In general, investors want to buy your business, not your time and energy as an owner. The more you can delegate management tasks to key employees, the more attractive your business is likely to be. This requires an investment in finding and growing management talent, as well as implementing more standardized business processes. It is likely to pay off, whether you seek to sell your business or simply want to extend how long you can work.
You can save and shelter more of your profits with retirement plans or by creating a trust that transfers your business asset with lower taxes. If you are similar to 75 percent of U.S. business owners and plan to fund some or most of your retirement from savings extracted from your business, consider taking these actions:
About SunTrust Business Owner Research: SunTrust surveys small business owners and advisors as part of its ongoing business seminars and symposiums. The small business owners attending these events include both SunTrust client and non-client business owners and are representative of the broad spectrum of businesses located in the SunTrust markets. The research cited in this report is extracted from these 5,425 small business owner surveys collected between 2007 and 2011.
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