Why Your Business is NOT a Retirement Fund

Why Your Business is NOT a Retirement Fund

April 29, 2022
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Many small business owners and entrepreneurs don’t set aside enough of their profits to sustain themselves in retirement since they commonly reinvest in the business. While you’re mostly worried about making your business profitable, you are not focusing on your personal finances. You also may be planning to sell your business and cash out for retirement, but that isn’t always a safe bet. If you don’t save for retirement, you could be making a massive mistake. Continue reading to learn why your business is NOT a retirement fund.

If your plan was to sell your business and live off the profits in your golden years, you may want to think again. Up to 80% of businesses will never sell, according to the Exit Planning Institute. This can be concerning because it’s common for a majority of a business owner’s net worth to be in their own business. So when it’s time to retire, your net worth is stuck in an asset that cannot easily be liquidated.

Even if your business is in the 20% that will sell, the selling process is not for the faint of heart. The process of selling a business can take years of hard work making your business buyer-ready.

This should be a clear sign that if you’re only focusing on your business’s finances, you need to make a change.

Diversify Investments & Assets

If you have your heart set on selling your business, you still need to have a plan B. By working with a financial advisor, you can include your business as an asset in your retirement planning but also diversify your asset portfolio by investing in assets outside of your business. Asset diversification is a smart move for anyone saving for retirement. When you have investments in different asset classes, you are minimizing risk in your portfolio.

Some of the best retirement accounts you can have are:

  • SIMPLE IRA
  • SEP IRA
  • IRAs and Solo 401(k)

Through your business, you can offer these retirement plans to your employees and use business funds to contribute to these accounts.

 

Mitigate Your Tax Liability

As a business owner, you have an advantage with investments that are outside of your business. A prime example is being able to fund your retirement accounts with profit from your business. In this scenario, you can lower your business’s taxable income, and even potentially drop a tax bracket.

Learning how to invest your business profits can minimize your tax bill, grow your retirement savings, and diversify your investments.

There are multiple advantages of being a business owner. You can work for yourself and generate income that can be unmatched compared to working for someone else. However, since many business owners do not separate their business finances and personal finances, many problems can arise when trying to plan for retirement. Having a financial advisor that specializes in business owners is the first step to improving your financial well-being.

 

Our advisors at Maven Bridge Capital can assist you with both your business and personal finances. By separating these two sections of your finances, we can help you be prepared for retirement. After all, you do not want to have to struggle in retirement after a lifetime of hard work building your business. Give us a call today to get started.

Sources:

https://www.kiplinger.com/business/small-business/entrepreneurship/603901/warning-your-business-is-not-a-retirement-fund

https://www.investopedia.com/articles/personal-finance/120314/top-retirement-strategies-small-business-owners.asp