A Retirement Message for the Small Business Owner

The Best Time to Begin Thinking About Retirement Is In Your 40s
It's easy to understand why many business owners avoid preparing for their retirement. The day-to-day operations of running a successful business often leave little time for thinking far into the future. And for many, the subject is a difficult one to address.

Many owners have coddled and nurtured their businesses from the ground up, and the mere thought of stepping away can be emotion-filled. Often, so many physical, financial and emotional resources are poured into the business, that it's difficult to find a separate identity. The business becomes like another child, and the thought of abandoning it can be agonizing.

The owner who truly loves his or her work may want to think that the job can continue indefinitely. The rush of adrenaline after sealing a deal or the burst of pride upon seeing a new product move down the assembly line can be heady stuff. And for some owners, especially those whose businesses are so demanding they've had little time to develop other hobbies, there's nothing better than going to work each morning. The owner who finds confrontation especially difficult may even go one step further and decide it's best to do nothing at all, thinking that once gone, others can deal with the issues.

No action, however, can create tremendous problems and heartache for everyone involved. Dying without preparing for succession can be costly from a tax standpoint. A business left without a successor often cannot succeed. Survivors and employees dependent on that income may need to make dramatic changes in order to continue current lifestyles.

Oftentimes however, the small business owner realizes the need before death occurs. For some a health problem like a mild heart attack, either personally or of a close friend, turns thinking inward. For others, a less dramatic chain of events, like paying the youngest child's last college tuition bill or finding a potential retirement home during a vacation, sets the wheels in motion.

The earlier this "awakening" occurs, the better. As a business owner, the best time to begin thinking about retirement is in your 40s. At this age, time is on your side, and many options are available. Less money is needed because funds can be accumulated over a greater period of time.

In the 50s, as the calendar pages seem to turn more rapidly, the need intensifies. A more aggressive strategy is necessary because there is less time until retirement.

The owner who waits until his or her 60s or 70s has even fewer options. If no one has been groomed to take over the business, it might be difficult or impossible to find someone who can quickly step up to the plate. The owner might have to sell the business in order to free capital for retirement, long term health care or other needs. Even at this late date, however, it is better to take action than to totally ignore the issue or wait until more urgent measures must be taken.

The actual retirement plan will differ markedly depending on the status of the company and the number of owners involved. Nevertheless, for sole proprietors or owners who share their business with several others, the process of developing that plan requires the same basic process.

Those steps include:

1. Envision the future and create a dream for yourself. Do you envision totally walking away from the business some day, or would you like to always remain involved in the major decision-making? Does the idea of serving as a consultant, on a regular basis or as needs arise, appeal to you? Do you want to remain in your current home, or would you like to move, year-round or part time, to another area? Are more frequent, longer vacations a goal?

2. Insert a dose of realism to those dreams. At what ages would you like to make changes? How much money do you need to live comfortably? As difficult as it is to imagine, what changes would be needed if you or a spouse were to die?

3. Network. Form alliances with other business owners to discuss ways of dealing with specific issues. Community service organizations such as the Jaycees, the Rotary Club, and the Chamber of Commerce provide forums for meeting and talking to other people with similar concerns. You might also want to develop a panel of experts who can advise you on a more formal basis. Other sources of information can be found on the Internet, through family business centers, or business departments on college campuses.

4. Bring in the experts. Ask your accountant, lawyer and insurance agent for advice. Develop a team that can help you achieve your goals.

5. Formalize the plan. Put your strategy in writing and address other issues regarding the business, including the succeeding management team. Inform key players about your plan and, if possible, involve them in its development.

6. Remember that no retirement plan is ever cast in bronze. A solid plan should be flexible enough to accommodate changing wishes and needs.

7. Put the plan to work and enjoy your retirement years!

A well thought out retirement plan can give you wings. By freeing capital and finding ways to make your money work for you, a retirement plan can give you the freedom needed to make your Golden Years truly golden.

Source: The Northwestern Mutual Life Insurance Company

Revised: 8/2005