As a business owner, it’s easy to get caught up in growing your business and push personal retirement planning to the side. Delaying your planning, however, could limit the benefits of certain advantages that you have access to as a business owner.

Planning for retirement as a business owner also comes with its unique set of challenges. Unlike employees who can rely on company-sponsored retirement plans or pensions, you may be responsible for setting up and managing your own retirement savings. Plus, the unpredictable nature of business income adds a layer of complexity that requires extra planning.

In this blog, we share our top retirement planning tips for business owners and entrepreneurs to help you effectively manage risks and make the most of the unique opportunities available to you. Getting a head start on your retirement planning now will help set you and your business up for a better financial future.

The first place to start when planning for retirement as a business owner is considering a big-picture overview of your goals. This should include your personal and your business goals, as some of them may overlap or influence each other.

Start by assessing what you want to achieve personally, such as your desired retirement age, lifestyle expectations, and financial security for you and your family. Then think about how your business can help you reach those goals. For example, you might consider whether you will eventually want to sell your business, pass it on to a family member, or transition ownership to employees. Each path can have different implications for your financial future and retirement strategy.

Aligning your personal and business goals ensures a smoother transition into retirement while maximizing the value of both. Your financial plan can be the North Star that helps you create and implement strategies to achieve each goal in a cohesive manner.

It might seem unusual to begin retirement planning by focusing on the end goal of your business in the long-run, but understanding this goal can significantly affect the retirement and estate planning strategies you select. Options to consider include:

• Sell the business: Selling your business can provide a lump sum that will boost your retirement funds, but it requires finding a suitable buyer and may involve complex negotiations and tax implications.
• Pass your business on to a family member: Transferring ownership to a family member can keep the business within the family. This involves preparing the successor and addressing potential estate and tax issues.
• Transition to employees: Transitioning your business to employees can ensure continuity and potentially provide ongoing income through a sale or partnership, but it requires careful planning to establish leadership and financial arrangements.

In each scenario, it's also important to develop a liquidity strategy to ensure you can easily access the cash or payments once you sell your business interests. This liquidity planning can take the form of life insurance or other contracts.

It can be hard to run your business in a professional way if you are commingling accounts or expenses. This not only makes it difficult to track your business’s performance accurately but can also complicate financial management for exit planning and affect access to credit.

Lenders and potential buyers require clear and distinct financial records to assess the viability and value of your business. If your accounts are mixed, the process can become significantly more challenging, as it obscures the true financial health of your business and may reduce its appeal to buyers.

Maintaining separate accounts for your business and personal finances leads to a more transparent and organized approach for smoother financial and business transactions.

As a business owner, you can take advantage of various tax benefits to boost your savings and support your retirement planning. For instance, you may be able to deduct certain expenses related to business use, such as a vehicle used primarily for business purposes or costs associated with business trips. These business owner tax write-offs can lower your taxable income, freeing up more funds to invest in your retirement or other financial goals.

To make the most of these opportunities, it's important to consult with a tax advisor in your state who can help ensure that your taxes are filed accurately and that you are fully leveraging all available deductions and credits.

Additionally, there are several retirement plan options that allow you to contribute significant amounts into tax-advantaged accounts, reducing your income tax bill and helping you save for retirement.

Unlike individuals who have access to a retirement plan at their company, as a business owner you might have to set up a retirement plan - whether just for yourself or for your employees as well - depending on how much money you wish to contribute to your retirement plan.

Depending on your type of business, your revenues, and whether or not you have employees, there are many different types of retirement plans to choose from as a business owner. Here is an overview of some of the most common ones:

• SEP IRAs: Flexible contributions and easy to set up for small businesses that have employees. One of the main SEP IRA benefits is the higher contribution limit compared to traditional IRAs. (See IRS.gov for the latest SEP IRA contribution limits.)
• Solo 401(k): Suitable for self-employed individuals with no employees. There is also a Solo 401k Roth option for those who wish to contribute on an after-tax basis, allowing their future withdrawals to be tax-free. (See latest contribution limits for one participant 401(k) plans on this page of IRS.gov).
• SIMPLE IRA: Ideal for small businesses with 100 or fewer employees. While these have lower contribution limits, one of the main SIMPLE IRA Benefits is their simplicity and ease of management compared to other plans for multiple employees.(See the latest SIMPLE IRA contribution limits on IRS.gov).
• Defined Benefit Plans (DB Plans): Best for business owners who want the highest possible contribution limits to maximize their retirement savings and current income tax savings. These have higher administrative costs and are more complex, potentially requiring the help of a defined benefit plan administrator. Some types include cash balance plans, traditional pension plans, and combination/hybrid plans.

While one retirement plan option might be great when you first start your business, it’s best to review and consider other options as your business grows.

Owning a business offers greater flexibility compared to traditional employment, but it also requires a more strategic approach to managing cash flow, especially when it comes to retirement savings. Unlike a steady paycheck, business income can fluctuate, making it harder to consistently allocate funds toward retirement.

One effective strategy is to build up sufficient cash reserves. Having a financial cushion allows you to manage the variability in your income so you can still make contributions to your retirement plan even during leaner periods.

To further streamline the process, automate your retirement contributions. By setting up automatic transfers from your business accounts to your retirement accounts, you ensure that a portion of your earnings is consistently set aside for retirement without requiring manual intervention each time. This automation reduces the risk of missing contributions due to busy periods or oversight.

As a business owner, it’s important to be aware of the level of risk in your portfolio, especially if your cash flow fluctuates and you occasionally need to dip into savings. The last thing you want is to unexpectedly have to sell off investments in a down market. Having an emergency fund can help you cover unexpected expenses without affecting your investments.

To effectively manage investment risk, diversify your portfolio across various asset classes and sectors to minimize the impact of poor performance from any single investment. It can also be helpful to have separate accounts for different financial needs based on their time horizons. For instance, short-term goals should be invested in lower-risk, more liquid assets, while long-term goals can benefit from higher-risk, higher-return investments.

Be sure to review and rebalance your portfolio regularly so that it stays aligned with your risk tolerance and financial goals. Consulting with a financial advisor can also help you gain valuable guidance in structuring your portfolio and creating a sound financial plan.

If you’re a business owner and would like to discuss your situation and ways to achieve your personal and business goals, click here to schedule a call with our team of financial consultants in Tampa, serving individuals and business owners in Florida and across the US.