As a small business owner, more often than not, your thoughts are consumed by sales and profits- the lifeblood of your business and consequentially, your lifestyle. As a parent, your thoughts are likely equally as consumed by college planning, the big(ger) house, the cars, and extra curriculars. And so, like most small business owners, you might find yourself stuck in the common, yet vicious cycle of funding (and growing) your business in order to fund (and improve) your lifestyle. The problem? Perpetuating this approach to cash flow management often leaves out one very important factor- you!
A recent study by SCORE and the U.S. Small Business Administration shows that one-third of small business owners do not have a retirement savings plan for themselves, and 40% of business owners are not confident that they will be able to retire before the age of 65. I see the faces of these statistics everyday.
In my practice, I am fortunate to work with many business owners, firm owners, private practice owners, and so on- all with successful thriving businesses, all savvy and very good at what they do, all masters of their trade in their own right, and yet many of them fall right in line with these statistics. So why are so many successful owners unprepared for retirement? There are several contributing factors. Do you (or your parents) struggle with these challenges too?
Firstly, emotions. Over the years (and sometimes decades), a business owner invests so much into their business, financially and emotionally, that for some, it can be hard to imagine leaving, even if the business legacy will be passed onto a family member. The idea of “letting go” can be so difficult that many business owners don’t even have a timeline for retirement. We all know that setting goals is the first step in achieving any kind of desired results, but in this case, it can also significantly ease the transition.
Secondly, financial dependence. For many owners, the business is their primary (if not sole) source of income. Many have put more money into their business than they have into retirement plans or into additional investments, leaving social security as their only other income stream.
Thirdly, delayed exit strategy. Because the business is, oftentimes, the largest source of income, and the largest asset, many business owners rely on the sale of their business to support their retirement plan- but they begin the valuation process too late. Sometimes, to their surprise, owners learn that the business is not worth the value they are relying on- a tough pill to swallow for someone who has dedicated their life and given blood, sweat, and tears to the business. With time no longer on their side, some owners are forced to scramble in the fourth quarter in an attempt to make up for the deficit.
I recently came across an article that compared the business owner’s retirement struggles to caring for houseplants. I couldn’t help but be curious for two reasons. First and foremost, I am always looking to educate myself so that I can be the very best resource for my clients. But more importantly, I am fascinated by anyone who can keep plants alive for any real length of time! I have a friend who recently moved to Turkey and left her beautiful orchids in my care. The fact that I kept them alive as long as I did has been one of my biggest accomplishments- it was harder than keeping my kids alive! But I digress.
I found the article compelling because she so accurately describes how women business owners, in particular, struggle with these challenges, and she did so by sharing a client story- one that is so common, one that you probably can relate to. As women, we are innately programmed to invest all of our energy (and resources) into caring for our babies, human or legal entity. We put ourselves last in so many ways, and financial planning is no different.
But fear not. It is never too early (or too late) to develop your retirement plan. And as a business owner, you’re in a unique position that affords more strategies. Unlike other professionals, earning income for yourself opens up additional retirement savings options.
We all get busy, consumed with the day to day of business and life. But before you know it, it’s time to retire and making up for lost time is hard...and stressful- not just for you, but for your loved ones. I encourage you to contact your financial advisor and explore the many different things that you can and should do during the course of your working years to set yourself up in the best possible way for a retirement income that won’t run out too soon and one that will match if not surpass the lifestyle you’re growing accustomed to now.
The first step is believing that you’re worth prioritizing and understanding the importance of doing so in the big picture of life. It’s kind of like how on an airplane they tell you to put your mask on first before helping others. With the right priorities, the right support team, and a solid strategy that can adapt if and when necessary, you can defy the statistics and arrive at your desired retirement destination.
If this resonated with you, I’d love to continue the conversation and help answer some of your retirement questions. And if you have any questions about plants, I am not your girl.