LIVING BEYOND EXPECTATIONS
From the Desk of Sarah Nadler Troutdale, Oregon
This week, we're diving into financial management strategies for business owners & entrepreneurs. If you're in a service-based industry, it might have occurred to you that the 'traditional' retirement model isn't all that workable for you!
The typical retirement plan is based on how much money you can ACCUMULATE over a period of time in savings accounts such as bank accounts, 401(k)s, IRAs, brokerage accounts (including investing in mutual funds, stocks, bonds and other securities).
Let's look at why that doesn't work for entrepreneurs...and what strategies will do better.
The formula for “how much” you need in order to retire is typically based upon an amount of income you would need to replace when you are no longer working at a J.O.B. This “retirement planning model” is the generally-accepted practice amongst the financial advisor community and is distributed to the general population.
But it's not the best one for entrepreneurs.
As a service-based business owner, firstly - a lot of the traditional savings vehicles don't make sense. You don't have a 401(k) or if you do there isn't anyone 'matching' it.
And if you're just starting out in business, it might be years (depending on your industry and business model) before the company you build can afford a nice retirement package for the owner.
As a business owner, you should follow a financial planning process that puts the focus on INCOME rather than accumulation of savings. In other words, don’t ask the question of “How much do I need to save for retirement?” Ask the question, “How much in INCOME do I want to have in retirement?”
For those who are new to the blog, Sarah Nadler is a Life Coach & inspirational speaker with twelve years of experience helping clients reach relationship, career and Big Hairy Audacious life goals. Her work has been featured on Enterprise Podcast Network, The Sierra Leone Times, and her latest book Walking Past Expectations was rated #6 on Lifney's list of Best Books to Read On The Beach This Summer 2019.
Here’s how to do the math in this type of retirement strategy:
The beauty of this retirement planning model is that YOU DETERMINE WHAT YOU WANT, FIRST AND FOREMOST, and then reverse engineer what you would need to do in order to produce this amount of income. 25K? 40k? 80k? It’s entirely up to you.
This INCOME-based planning approach puts you in the driver’s seat. It allows you to align your income with the lifestyle you WANT to have. It doesn’t make you reliant on 1 or 2 income sources from investment vehicles with potentially volatile performance that has too large an impact on your ability to live life on your terms.
Watch the video below for more information on the options you have as a business owner for retirement (not financial or investment advice - purely for informational purposes.)
As a service-based business owner, your company is perhaps the largest asset your household owns. Therefore, it only makes sense to factor the business into your retirement plan.
The first retirement strategy you should consider is to bring on a partner with the intention of selling to them eventually. This allows you to really ensure your clients will be served the way you treated them, and often also provides a potential for continuous income in retirement when you fund the transition in part or in full.
The second retirement option is to sell your business to a private buyer. Look for a new graduate or up-and-coming professional or entrepreneur who wants to own their own business, without having to start from scratch.
Your third potential retirement strategy as a business owner is to "move up" in your company, rather than selling.
By hiring one or more professional service providers and hiring/training a CEO, you can become an absentee owner who retains full rights over the company without having to manage it or deliver the service personally.
This is a great option for having continuous income in retirement as well as a way for those professionals who love what they do to keep working at a more comfortable pace.
Another strategy is selling your business to a corporation when you're ready to transition.
Selling to a corporation has numerous advantages. It helps ensure you will get market value on your business at the time of sale, provides a cash injection into your household upon retirement which you can use to fund a multitude of financial products and investments, and leaves a legacy behind by ensuring your company will continue serving clients and the community.
Lastly, we have the hybrid model of retirement - combining one of the above strategies with more traditional financial products such as IRAs, etc.
Speak to your financial advisor about which strategy will work best for you and your family!
A PASSION FOR ABLE PEOPLE
I'm Sarah Nadler and I help small business owners achieve work/life balance by increasing their revenues in a way that does not decrease their time.