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  • Writer's pictureRalph Achille

3 Mistakes to Avoid When Approaching Retirement for Business Owners

Retirement seems so far away for most until it isn't.

Indeed, the working years of building your business as an entrepreneur can fly by, and you will find yourself in retirement before you know it.

The challenge for business owners is that retirement is difficult to grasp and plan for. Leading up to "retirement," most small business owners are still focused on the success of their business. There isn't much time for anything else.

However, in our experience, business owners often make several mistakes that could be avoided when approaching "retirement." This article focuses on three mistakes for business owners to avoid when approaching retirement.


Key Takeaways:

  • Three mistakes to avoid when approaching retirement for business owners include (1) not having a comprehensive financial plan, (2) not having a holistic investment strategy, and (3) not having a business exit strategy.

  • Small business owners are more at risk of bearing the burden of saving for retirement and, therefore, must prioritize retirement.

  • For small business owners, retirement is often an emotional experience that must be planned for intentionally. Certain mental obstacles must be overcome in order to phase into retirement successfully.

Why Business Owners Must Prioritize Retirement

Prioritizing retirement is even more important for small business owners.

The burden of saving for retirement lies strictly with the business owner. Unlike a W2 employee at a large firm, no one else provides benefits, matching contributions, etc.

Therefore, if a small business owner does not prioritize retirement, they will find themselves in a vulnerable position come "retirement" age.

Entrepreneurs have a particular spirit that leads them to believe they will "figure it out". However, this mindset could lend itself to unnecessary stress and potential hardships if unknown circumstances present themselves.

Making an intentional effort to plan as you approach retirement may lighten the stress level as you transition into retirement. When retirement planning is prioritized during pre-retirement, a business owner will be mentally and financially prepared to make the leap.

3 Mistakes to Avoid When Approaching Retirement for Business Owners

As noted previously, the three mistakes to avoid when approaching retirement for business owners include (1) not having a comprehensive financial plan, (2) not having a holistic investment strategy, and (3) not having a business exit strategy.

It is important to note that all three areas are interconnected. Without one of these areas checked off, the retirement plan will have some severe vulnerabilities.

1. No Comprehensive Financial Plan

When it comes to having a comprehensive financial plan, the focus is on ensuring that every aspect of the plan works together and that no stone goes unturned. A comprehensive financial plan for a small business owner has the most significant impact when the owner's core values are aligned with specific financial (and personal) goals.

Why A Comprehensive Financial Plan Matters

Many considerations must be factored in regarding pre and post-retirement planning. A comprehensive financial plan should consider areas such as:

  • Risk Management & Insurance Planning

  • Investment Planning

  • Tax Planning

  • Retirement & Income Planning

  • Estate Planning

  • Psychology and Behavioral Finance

  • Business Exit Planning

  • College & Education Savings Planning

  • Cash Flow Management & Budgeting

  • Debt Management

Within each of these areas are many subtopics. For instance, there are several things to consider within the realm of retirement. The nuances related to Social Security income timing and projecting out healthcare expenses only scratch the surface.

When a small business owner has a comprehensive financial plan that covers all the critical areas of an entrepreneur's financial life, the path to retirement becomes much more evident.

2. No Holistic Investment Strategy

Too often, business owners lack a cohesive investment strategy that aligns with their financial plan and goals.

In most cases, it is more so when a business owner has most of their eggs in one basket - their business.

The solution here is to simply adopt a holistic investment strategy that aligns with your financial plan, goals, risk tolerance, and time horizon. Below are a few key items that should be considered when building out a holistic investment strategy:

  • Create an Investment Policy Statement (IPS). This document outlines your target asset allocation and sub-asset classes based on your risk-return desires, goals, etc. The IPS helps guide investment decisions over multiple asset classes, including your business.

  • Consider Asset Allocation. (U.S. Equities, International Equities, U.S. Bonds, International Bonds, & Alternatives [real estate, gold, commodities, etc.]). Your asset allocation will help you regulate the overall risk of your portfolio.

  • Consider Tax Location. This strategy aims at utilizing the different tax treatments of certain investment accounts. For example, income from dividends in an IRA is not taxable. However, income from dividends in a Taxable Brokerage Account is taxable. By being strategic about where assets are held, can help you optimize the tax efficiency of your assets.

3. No Business Exit Strategy

Finally, and possibly most important for any small business owner, a business exit strategy must be implemented.

We often find that business owners simply put this off or wait until it is too late to start thinking about this. It is sad to see, but it doesn't have to be this way.

The reality is that some small business owners are able to sell their businesses, and many are not able to do so. Sometimes this has to do with the type of business or in other cases, it is bad preparation on the business owner's part.

However, the important point that we want to hammer home is that you can (and should) create a business exit strategy as soon as possible. Work with a financial team (i.e., CPA, business broker, attorney, and planner) to start outlining what this could look like, given your business type.

Consider the employees or partners that currently work for you. Is there anyone there that could succeed you and take the reins? What does your family's involvement look like? Have you created enterprise value, and if not, what can you do to set yourself up for success?

All of these questions are important and must be answered by the business owner. When you prioritize your business exit strategy, you are moving closer to achieving retirement.

This point cannot be missed by anyone owning their own business. When you intentionally create a business exit strategy, you are putting yourself in a position to achieve a successful retirement. Remember that your business is an asset that will be used for retirement (or legacy goals).

We Can Help!

Entering retirement can be scary and unknown territory for most business owners.

However, you do not have to navigate that path alone.

The three mistakes to avoid when approaching retirement that we have highlighted above are areas of focus that we specialize in for our clients. We make sure that a holistic financial plan is built, an investment strategy is aligned with your goals, and a business exit strategy is mapped out. By diligently working through these important items with our clients, we aim to ensure the success of our clients both personally and professionally.

Our firm is here to partner in ensuring you achieve all you want in life, personal finances, and your business. We specialize in working with Haitian American and other minority business owners and members of the South Florida community. Please use this [Calendar] to schedule an introductory call.

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