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Are You Ready to Retire?

How you can plan now to help your business continue to thrive when you step away.

Kevin Stack has more than decades of experience in business management, engine-building and manufacturing. His personal website is www.nobleventurefinancial.com.

Building and growing any business in any industry is difficult and requires a lot of hard work and dedication, especially in our industry. Often, the success of a business depends greatly on the owner and maybe a few key individuals. If that ownership or those key individuals leave, then customers are left with the idea that the business has changed, and usually for the worse. 

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In retail or food industries, signs that say “Under new management” are often seen as a good thing and an opportunity to try them again. But, if you’re a shop owner and have spent the better part of your adult life building a great reputation (and it’s time to take a break and consider retirement), then a sign like that might be a negative thing.

Even if you’re still on the uphill climb of building your business, you need to think about the long-term aspects of an exit strategy. It’s never too late to lay out a business plan. Like many business owners, you got started trying to please the customers and pay your bills. As things grew, you probably looked at expanding with more equipment and maybe a bigger place. These are the basic things that we all try to do, but a solid business plan lays out goals and milestones from beginning to end, cradle to grave.

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If you’re reading this, chances are you’ve already built a business or are in the middle of working on it. It seems like that’s the hard part, but all that hard work doesn’t need to be lost when you get ready to retire. The following are a few things to consider when you think about slowing down and enjoying the fruits of all your labor.

Build an exit plan

The best way to do this is to make the business able to work without the owner. This means that if you’re the only person there who knows how to run it, when you leave, it’ll be worthless. You need to concentrate on building up the business more than your personal reputation.

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Cross-train everybody in case someone is out or leaves. Key employees are nearly irreplaceable, so hire good people and treat them well enough that they will never want to leave. That means decent pay, good benefits and make them feel valued. If you treat your employees right, they will take care of the business for you.

Build your business to be able to handle market swings

If the economy is in a downturn when you retire, you will need to still be able to show the business has value or consider working for a few more years to wait out the economy so you’ll be able to better fund your long-term retirement. 

Employees will often have a set number of years or an age to retire at, not so for business owners. As an owner, you need to be able to read the market and decide when the time is right for you to retire. That doesn’t mean you need to continue working 80-hour weeks until you walk out the door, quite the opposite. 

Building a business is like raising a child, it requires constant attention, but as it gets older, it should be able to stand on its own two feet and take care of you.

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If the economy is booming, be ready to sell

Consider taking on junior partners with a long-term plan for them to buy the business. Some of your key employees may want to step up and run the show. Make it known to them that you are interested in additional help running the company, with an eye toward retirement someday. That way, all parties involved can plan on it. It will give you both something to work hard for and benefits all involved.

Let them have some vote in how things are run so they will be comfortable making decisions in your absence. Training is always on-going. Train your employees well enough for them to leave and treat them well enough that they never will, and you will be successful.

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If you enter into any business agreement, get it all in writing

Another thing to consider is to diversify your business enough to weather market trends or industry changes. For example, if all you do is state vehicle inspections and for some reason the state eliminates those inspections, you’re done. Don’t be a one-trick pony, but also don’t try to bear hug the world. 

Doing a few things very well is much better than doing a lot of things poorly.

 One thing to consider while you build your business is money for retirement.

Here are a few financial retirement planning strategies

Create a SIMPLE IRA: SIMPLE stands for Savings Incentive Match Plan for Employees. As of 2020, employees could defer up to $13,500 of their salary, pretax, and those 50 or older can go up to $16,500 by using a “catch-up” contribution. If employees are using other employer-sponsored plans, the total contribution can’t be more than $19,500 total.

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 Employers can match up to 3% in a SIMPLE IRA of the employee’s compensation., which is tax deductible for the employer.

 Create a Simplified Employee Pension (SEP): Employees can make pretax contributions of up to 25% or $57,000, whichever is less. Employers can make tax-deductible contributions and the employees won’t pay taxes on the employer’s contribution until they take distributions from the plan when they retire. 

Any size business can start a SEP and there aren’t any limitations on number of employees or business structure (sole proprietor, nonprofit, corporation, LLC, partnership, etc.) The employer can decide how much to contribute each year, so if the business has a bad year, you aren’t locked in. Also, the owners are considered employees and can make employee contributions to their own SEP IRA accounts.

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  IRAs and Solo 401(k)s: Traditional IRAs are funded with pretax money and taxed in retirement. A Roth IRA is funded with after tax money and therefore are already taxed and any distributions taken in retirement are not taxed again. You can set up IRAs for your spouse, too. Solo 401(k)s, also known as self-employed 401(k)s, are plans set up for when the owners (and spouses) of the business are the only eligible participants.

The best way to prepare for retirement is to build a plan. This could mean talking with a financial advisor about retirement funding, a business coach about building your business or a business sales specialist about selling your business — think of them as a realtor for your business instead of for your house.

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Create a plan and set goals for yourself and you will get there. Even if you don’t always meet your goals, at least you have a plan. Planning for success is the first step in getting there, not planning is the first step toward failure. Good luck!

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