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Planning
Date: August 31, 2020

Choosing a Retirement Solution for Your Small Business: Do You Have a Real Plan?

As a small business owner, you may have a detailed budget for every dollar that comes in and every dollar that goes out. You may have put together a stellar business plan. You may even have a benefit plan for your employees. But do you have a plan for your own retirement? What is your exit strategy? Many small business owners are so focused on their day-to-day operations that they fail to plan for the future.

Studies show that while most employers have a plan to make money, they haven’t talked to a financial advisor about their succession plans – what they’ll do for retirement.

As an entrepreneur, it’s easy to forget how vital planning the “end” stages of your business is. When business plans are created, the focus and attention are understandably more on the startup and launch phase. But once you survive those stages, succession planning should quickly become a new priority. This is your retirement.

A common assumption is that the business will be handed down to a family member or “simply” sold, but that’s not always a realistic possibility, and both options contain many factors and layers that can affect the future success of your business.

What is Your Current Plan?

If you are looking to sell your business or transition it to a successor, you need a detailed plan that will maximize the return on your investment in the business and position the company for future success.

If you are planning on selling your business, here are a few initial questions to ask yourself:

  • What does the current demand vs. future demand in your industry look like?
  • What about the location of your business? Is it easily transferable?
  • Are your business assets truly assets? Or are they closer to being liabilities?
  • How much market value and remaining useful life do they possess?
  • How are your relationships with suppliers? Are there key suppliers you rely on? If so, how much of your inventory is purchased through them?
  • How new or old are the items in your inventory?
  • Do you have long-term repeat customers that show stability and product satisfaction?
  • Are you providing a service or product that is dependent upon your efforts alone?
  • Realistically, what will happen once you are removed from the picture?

Depending on your industry, these may be some of the fundamental questions that investors and buyers will be asking. It takes time to prepare your business for sale and to ensure that the answers to these questions paint your company in a positive light. We can help you identify and optimize key metrics a potential buyer will focus on.

Many times, a business can be your largest asset, so it’s crucial that you receive the best price possible and structure the sale in the most tax-efficient manner.

There are a lot of rules and regulations surrounding the sale of a business. The last thing anyone wants to deal with in retirement is penalties, fees and other burdens that can hinder your retirement plans.

 

It’s never too soon to start planning for the future. Contact Paradigm Financial Advisors and get the conversation started.

 

Passing the Baton

Deciding to transition your business to your children or business partners involves a different set of concerns. It’s wise to address these factors early on.

At Paradigm Financial Advisors, our team, which includes tax professionals and attorneys, specializes in helping business owners navigate these decisions. We take inventory of their businesses’ financial situation and help propose a structure that will allow everyone involved to achieve the best after-tax results.

A mistake many business owners make is assuming they can maintain their lifestyles after passing the baton. But to do this, it’s important that you design a portfolio that will allow you to accomplish your long-term financial goals, whatever they may be.

Estate planning can also be a concern for business owners. While discussing your own death isn’t always the most enjoyable conversation to have, it’s an important one, especially if your business is part of your estate plan. (For help getting this conversation started, read our recent blog post: What’s a Family Life Guide? Paradigm Financial Advisors Explains.)

Steps like implementing a trust and asset protection strategy can help ensure your legacy lasts. Other strategies can include converting an IRA to help reduce future taxes, developing a charitable giving plan, taking a look at long-term-care insurance and holding family meetings to make sure your loved ones are on the same page.

How Can a Financial Advisor Help?

Unless your business is in the financial services industry, making sure you’re prepared for retirement can be a complicated and overwhelming process. Working with a financial advisor who specializes in helping small business owners can be a huge benefit. What you plan on doing in retirement will have a significant impact on your financial needs.

If your current employees aren’t already being provided with a retirement plan, a financial advisor can also help you choose a plan that’s right for your employees and for you. The recent SECURE Act’s retirement plan legislation that was passed in late 2019 makes it easier for small businesses to offer retirement plan options to their employees. (For more about the SECURE Act, read our recent blog post: The Secure Act: 13 Things Paradigm Financial Advisors Wants You to Know.)

Essential Questions for Your Financial Advisor

Working on a detailed succession plan at the very start of your business may feel strange, but the truth is, it’s never too early to start planning for the future. Choosing the right retirement solution or exit strategy for your small business is too important to put off. If you’re looking for a fee-only fiduciary financial advisor to help you with your succession plan, contact Paradigm Financial Advisors to see how we can help.

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Jim Reding
Author:

Jim Reding

Jim is CEO and Managing Member of Paradigm Financial Advisors LLC.