Latest Smart Tips Inc. News
Jul 15, 2021
| Membership (fee-based) getty As a business owner approaches retirement, they have many difficult decisions to make about their own and their company’s future. While some want to sell their business to fund their golden years, others want to simply take a step back from day-to-day operations. Owners who want to remain involved in their business post-retirement would do well to not only set aside dedicated funds for their personal use but also decide how big a financial role they want to play in maintaining operations. To help, 13 members of Forbes Finance Council share steps to help small-business owners settle on, build and maintain post-retirement financial funds for their business’ operations. 1. Plan several years in advance. Business owners need a trusted advisor who will force them to think beyond the next quarter or even next year. Creating a vision for what you want your retirement to look like a couple of years prior to making this adjustment will allow for the training of key employees to take over your responsibilities as well as provide you with the time to create the capital in the business necessary to make the change. - Cole Stoneman , IronBridge Wealth Counsel 2. Consider permanent life insurance. Work with your financial advisor to consider using permanent life insurance as a tool to leverage business cash reserves to fund future executive benefits. It’s a great way to keep your cash on your balance sheet, achieve strategic growth and manage risk. - Drew Gurley , Redbird Advisors 3. Set aside a fixed percentage of profits. Set aside a fixed percentage of profits each month for the long-term needs of the business and leave it alone. Create guidelines around the use of these funds (similar to an investment policy statement) and then follow these guidelines explicitly. - Jarred Cook , GlowTouch LLC MORE FOR YOU 4. Automate diverse investments. Automate a monthly dollar amount to invest in things outside of your business. You have to diversify your risk, but they can simply be index funds or mutual funds—they don’t have to be high-risk investments. Automating it will make sure it happens. - Joe Camberato , National Business Capital Forbes Finance Council is an invitation-only organization for executives in successful accounting, financial planning and wealth management firms. Do I qualify? 5. Consider multiple avenues for saving. There is always a wise play here, such as selling a minority share amount. I’m a firm believer in always having a variety of types of savings accounts for both my business and personal finances. - Julio Gonzalez , Engineered Tax Services Inc. 6. Leverage tax-deferred investments. Taxes are the largest expense business owners have. Therefore, a great way to build an emergency retirement fund is to use a Roth IRA and a Roth 401(k). Once you’ve maxed out the Roth IRA and Roth 401(k), you can move on to a nonqualified account. Then move into tax-deferred investments (depending on your income) and finally, a taxable account. - Justin Goodbread , Heritage Investors 7. Don’t try to ‘save’ your business post-retirement. The one thing an owner who doesn’t sell their business upon retirement shouldn’t do is try to “save” their business. If the business becomes mismanaged or unprofitable during their retirement, owners who have “stepped back” will usually jump back in to try and “save” it, which usually results in the eventual loss both of the business and their personal retirement funds. - Joseph Orseno , Tiltify 8. Invest in your succession plan. The best investment to make is in human capital. Have a clearly developed succession plan in place and take the time to develop depth within the management team. This enables the founder to step back from the day-to-day operations while remaining an engaged and committed shareholder. Switching the reliance on a salary to that of dividends will also aid in sustainability. - Jason Hamilton , First River Capital 9. Determine how long you want to stay involved. A business owner’s plans in this situation should depend on how long they intend to hang around. Personal nest eggs are often based on six months to one year of living expenses. Once the owner determines how long they intend to stay, they can triage the most important operating expenses to cover and define how many months or years of coverage they need. That would give them their business nest egg requirement. - Todd Sixt , Strait & Sound Wealth Management LLC 10. Save at least three months of operating expenses in cash. Make it a goal to have three to six months of operating expenses in readily available cash. You don’t have to keep this in a bank account; it can be invested in short-term securities that you can access quickly with no penalties. Build this fund over time by mandating the placement of a small portion of your incoming sales into a specific account. Be strict in funding this or you won’t meet your goal. - Aaron Spool , Eventus Advisory Group, LLC 11. Set aside reserves for executive hires. At all times have at least six months of business and personal expenses saved. I use life insurance and gold so that I outpace inflation and own real assets instead of currency. This gives you a buffer. Additionally, set aside reserves for hiring the right executive team so that you can turn over your role as the owner-operator and know that the job is not going to boomerang back to you in the future. - Jerry Fetta , Wealth DynamX 12. Invest a percentage of profits in a low-risk vehicle. Retirement or just stepping away from the active management of a company requires long-term planning. I recommend spending at least a few years investing between 5% and 15% of your company’s profits in a low-risk bond or money market fund so you’ll have a solid nest egg set aside to sustain business operations during your upcoming transition period. - Tyler Gallagher , Regal Assets 13. Go over future funding options with your advisor. Set a meeting with your financial advisor to discuss profit sharing, ghost shares and other ways to set aside funds for the business owner later. This will also be helpful from a tax perspective right now. - Kelly Shores , GCubed, Inc. Check out my website .