Author: Lynn Williams, Lifestyle Protector
14 September 2017
Starting, running and growing a business is hard work. As a business owner, you have countless responsibilities and too few hours in a day. Often, in the midst of professional priorities, you end up putting your personal financial life on the back burner.
If you have not started planning your retirement, you are not alone. Some entrepreneurs think that growing their business is all they’ll need to retire. However, simply having a business doesn’t automatically mean you have a retirement plan. Some business owners think they are never going to retire. But, simply thinking you’re going to work forever is also not a plan.
Regardless of your expectations, the path to the future is filled with risks, challenges and misconceptions. If you address potential stumbling blocks, you can avoid mistakes that could derail your future.
- My Business is my Retirement Plan.
A significant myth among business owners is that the sale of your business will secure your retirement. Many business owners who try to sell their business get a rude awakening when they find the value of their business does not meet their expectations. They are frustrated that the years of sweat equity has not translated into actual value.
In fact, selling a business is loaded with uncertainties. Factors such as the lack of a succession plan, over reliance on a few customers or the failure to have robust systems and processes can deplete the value of your business.
If you expect to sell your business to fund your retirement, these are real risks in which the value of the business will be heavily discounted and your expectations will not be met.
What you can do:
- Define your ideal exit strategy. Do you want to sell your business? Pass it to the next generation? Find an outside buyer? Get clear on how you want to exit your business.
- Determine the real value of your business. Speak with your accountant or hire a qualified professional to provide a valuation of your company as it is today. Depending on how far you are from retirement or exiting, you may need to update this valuation in the future.
- Create a strategy and stick to it. Your exit strategy might require you to hire new people, adjust your services, or implement a number of other changes. Commit to making the changes. It likely won’t be easy. But, it will be worth it.
- I’ll Work Forever.
Another significant myth among business owners is the belief that you will have the choice to work for as long as you choose. This means that you pay insufficient attention to insurance to protect your income earning potential as well as your assets.
The older you get, the higher the probability of disability and critical illness and the need for long-term care. Insurance can help you offset the cost of these potential life events and prevent the need for dipping into your savings and investments.
In addition, life insurance can offset the costs of probate fees, income taxes on deemed dispositions and other expenses related to estate planning. These costs can be a burden to your family.
Many people think of insurance as a current expense for a future benefit that will never eventuate. Insurance is not the most exiting thing to talk about. In fact, it’s probably a pain. It’s also not uncommon to think a serious illness or injury is not going to happen to you. But, it can.
Consider this situation, you’re a business owner and in your spare time you’ve decided to do some home renovations. One Saturday morning you’re working on your house and you stand up too quickly. You hit your head on a low beam so hard you give yourself a concussion. Now your concussion is affecting your ability to work. Your spouse isn’t working because you have a young family and someone needs to focus on taking care of the kids. But, now you’re in a pickle. You have no income protection insurance. You have to get back to your business as soon as possible. But, you can’t work as hard as or concentrate for as long as you did before your concussion. Your income is suffering and your marriage is strained.
You’ve invested a lot of time, energy and money into your business. You should be protecting its most important asset – you.
You didn’t purchase home insurance because you think your house is going to burn down. The same goes for personal insurances. You don’t purchase income protection or critical illness insurance because you think you’re going to become injured or ill. If you do take the time to plan for the unexpected, you’ll be a hero if something does go wrong. And, who wouldn’t want that?
What you can do:
- Analyze your current insurance coverage. Do you have the right tools? Do you have unrecognized gaps?
- Address your family’s insurance needs. Calculate your total debts and lifestyle expenses to find the amount your family would need if you were to become ill or injured and couldn’t work.
- Uncover your business insurance opportunities. Work with a professional to determine how insurance might be able to help support both your business needs and your retirement goals.
When considering retirement, there is no magic formula. The key to a successful, comfortable retirement is to consider all the options and plan accordingly.
Author: Lynn Williams, CPA, CA, is the owner of Lifestyle Protector Financial. A boutique financial services firm helping business owners plan and prepare for retirement on their terms.