Running your own business, keeping tabs on expenses, managing both operations and finances, it is easy to lose sight of the bigger picture. That is to say, many self-employed individuals don't plan as they should as far as building wealth in anticipation of their retirement. And then what happens is that ultimately they realize they don't have enough money to retire. Somehow retirement savings became the last priority rather than one that should easily be toward the top of the list. Several financial experts chimed in regarding steps and tips that self-employed people can start doing to both keep their business thriving and still build personal wealth so that eventually they can consider retiring.
Create a Solid Budget Plan
Even in uncertain economic times, it is critical to establish not only a budget for your business but a personal one as well. And then to the best of your ability…stick to it. To weather those storms that do arise, you want to be sure that you have at least 6 months of overhead and expenses set aside. Also, you want to consistently be contributing to a retirement account.
Plan Your Exit
As far as exiting the company, a long term plan is key here. In the early phases you're going to put more back into the business to make it profitable. Once it does hit the various milestones you set, you need to start investing your money in a way that will enable you to maximize the company's value while still having money set aside for your retirement.
Think Ahead
Your business is more than just your day to day job. You may start to think about your company as an asset. Build it so that it is an attractive potential purchase for someone down the road. You might discover the business itself is your greatest source of retirement income.
Have Multiple Strategies
It's not just about one retirement account or one savings method. Make a variety of investments view the company as a transferable entity one day, purchase real estate in anticipation of retirement. The more diverse your strategies for saving, the better off you'll likely be.
Always Pay Yourself
Initially the amount you pay yourself will probably be small. It might be as little as 5% of the revenue. However, as the company grows, you will get more and more used to running that business with the money left over after you pay yourself. And in this way, you take a step toward safeguarding any retirement plans.
Live Within Your Means
That said, it is often tempting in a period of prosperity to pay yourself more than you should. Be responsible with the money you take. Be sure to live within your means, adhere to a fixed income and stick to it regardless of how the company may be doing at a given time.
At First Union Lending, we work with small business owners all the time looking to make that transition to retirement. If your company is at a point where it needs additional cash for whatever reason, we can help. Call today!