BLUNDER #1: Investing In the Business and Not In a Retirement Plan.
For more than 20 years Jim has run a successful shipping company that uses trucks to ship packages across the country. Like most business owners, he invested his profits back into the company, buying more trucks to keep his business growing instead of investing in a retirement plan. Now at age 51, Jim is realizing that sometime during the next 20 years, he’s going to want to retire, but drone technology is changing the future of the shipping industry. He wonders, will his business become obsolete, making it impossible for him to retire? Nearly 60 percent of U.S. small business owners plan to retire before age 65, yet according to a survey by Manta, more than a third of them have NO retirement savings in place. Like Jim, they put the majority of their earnings back into their business. Twenty years is enough time to grow and develop a successful business, but it’s also enough time for things in the world to change. Will your business be worth what you need it to be worth by the time it’s time for you to retire? It is possible to build wealth like a millionaire without investing the traditional way.BLUNDER #2: Planning To Sell Your Company In Order To Fund Your Retirement Plan
Chaves and his wife own and operate a dog grooming and pet boarding business. They are open seven days a week, even on the holidays, because that’s what their customers expect. If you ask them about their retirement, they will tell you: “Our business is our retirement plan.” According to a 2015 survey released by the Financial Planning Association (FPA) and CNBC, 78 percent of small-business owners plan to sell their company to fund 60 to 100 percent of their retirement. This could mean disaster for the 28-million small business owners in America who want to sell during what may be a time of significant market saturation. Every month, more than a quarter of a million Americans turn 65, and experts predict a significant increase in the number of businesses going up for sale, somewhere in the neighborhood of 12 million businesses over the next 10 to 15 years.BLUNDER #3: Not Knowing the Value of Your Business
For 35 years Richard nurtured his landscaping business and now it’s time for him to retire. He has become attached to his customers and his employers, but neither of his kids is interested in taking over the business. Not only does he have to find a buyer, he also has to let go of what he has spent a lifetime building up. According to the FPA/CNBC survey, the only thing harder than finding a buyer for your business is the emotional process of letting it go. More than half of all small business owners will sell either to their employees or family members, but for the other half, things can get sticky. It’s difficult to monetize a small business, and very few business owners are even aware of their company’s true value. Taking steps now to understand the true value of your business can give you knowledge, flexibility, and negotiating power at every stage of the planning process.BLUNDER #4: Not Having an Exit Strategy
Joe had a successful orthodontist practice, a wife, three kids, and a mortgage valued at over $1 million. What he didn’t have was an exit plan. Last winter during the holidays, a skiing accident broke his wrist and crushed his hand, and now he can no longer run his practice. While the future is uncertain for all of us, one thing is certain: none of us can keep doing what we’re doing now forever. Someday, things will change, and for people like Joe, things might even change far sooner than expected. Having an exit strategy in place means being able to answer two important questions:- How will you transfer your business? Will you sell it to your children or a family member for future wealth, or will you sell it in return for cash or future assets?
- How will you get your income during retirement?