Beyond Financial Independence

Advice for Entrepreneurs: RE Retirement

September 16, 2012 · Jay Bugg · Comments

First read the following article: http://online.wsj.com/article/SB10000872396390444230504577615861593287688.html#

Bonus points if you watched the video as well.

The gist of the article is rather simple, the entrepreneurs have a desire to sell their businesses in order to fund their retirement, during a time of tight credit. There are many things wrong with this concept but let us touch on the top three.

  1. Know your money! The businesses in the article and most small businesses should be classified as “Venture” dollars. Venture dollars are at risk, and are often at risk for wide price swings. Just like you would not plan a retirement on a portfolio of penny stocks you should not count on any single asset to fund your retirement. A small business is a single asset.

     

  2. Max-out retirement accounts. I know this one can seem nearly impossible when you are starting a businesses and yes often entrepreneurs use funds from their 401ks to fund start-up costs. But again depending on a the sale of a single asset is not the way to a secure retirement. Self employed persons have the added advantage of being in charge of the rules of their own 401k and IRA. If you are taking zero salary, you need to work hard to at least pay yourself enough to contribute the max to an IRA. Then look toward SEP-IRA, you will have to start paying yourself $200,000 for the SEP-IRA to be of maximum value but with contribution limits of up to $50,000 it is a nice goal to have. http://iracontributionlimits2010.com/ira-contribution-cheat-sheet-2012/ Consult your tax advisor.

     

  3. Start treating your business like an investor would. This is often the toughest piece of advice for small business owners to take, and the most valuable. Many small business sales suffer from the “key player” complex. That is to say without the key player the business has a drastically reduced value. Often with small businesses this is the owner, and in this case the owner wants to retire. Love him or hate him Robert T. Kiyosaki has this one right. Most small business owners cannot see the difference between being self employed and being an investor. Making that transition early is the key to being able to sell your business and get top dollar.

There are people who want to run lifestyle businesses. That is to say, once the business can support the lifestyle of their family, they do not endeavor to expand much after that. The retirement prospects of even the most easy going lifestyle business owner will be drastically improved by taking the three points of advice above. Do not depend on the sale of the business for retirement. Max out retirement accounts as soon as possible, and transition your business so you are not the key player.


CommentsTags: Vault · Venture