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Aug 13, 2021
4 min read
Last update: May 16, 2024

Long-Term Financial/Retirement Planning for Small Businesses

To celebrate National Financial Awareness Day on August 14th, we’re encouraging small business owners to examine their long-term financial planning goals. National Financial Awareness Day is dedicated to gaining “the basic financial principles needed to form the foundation for financially sound practices from early adulthood through retirement.”

As a small business owner, you’re likely consumed with the day-to-day tasks of running your company. Short-term issues like inconsistent cash flow may take precedence over long-term financial planning, but if you continue to put off long-term financial planning, you’ll wind up being ill-prepared to achieve your goals for retirement.

To secure a stable financial future starts by making smart financial decisions today. Here are 3 steps towards long-term financial planning for small business owners.

Determine What Your Ideal Retirement Looks Like

The only way to ensure you’ll be able to comfortably maintain the lifestyle you desire is to plan for it. A good place to start is to think about what your ideal retirement looks like and to ask yourself these questions.

  • At what age would you like to retire?
  • Do you plan on traveling? (Hello Bora Bora! 🌴)
  • What are your lifestyle goals when you retire?
  • Will you relocate when retired?
  • Any financial obligations that may impact the timing of your retirement?

Once you’ve contemplated what you want your retirement to look like, you’ll be able to better determine what your income needs will be and plan accordingly.

Plan for Your Retirement by Leaving it to the Professionals

Recent studies have found that almost half of Americans don’t expect to have enough money to retire comfortably. The good news is that if you start planning in advance, you can look at your retirement goals, assess your situation, and determine if your current path will enable you to achieve your dream retirement.

There are many options when it comes to saving for retirement such as a self-employed 401(k), Simplified Employee Pension Plans (SEP) IRA, Savings Incentive Match Plan (SIMPLE) IRA, or a ROTH IRA. Each option comes with pros and cons depending on the size and structure of your business, so it’s a good idea to enlist the help of professionals.

Having the right team of professionals in your corner can make a world of difference. These professionals can be pivotal in your business’s long-term financial planning.

  • Real Estate Attorney

If you own the building that your business occupies, work with an experienced attorney who will protect your interests and help you understand your tax implications.

  • Real Estate Agent

Find a real estate agent who keeps their eyes on the market at all times and has a thorough understanding of commercial real estate in your area. Your agent should be your advocate to help you obtain the best possible price.

  • Certified Public Accountant (CPA)

A CPA possesses a thorough understanding of the different tax advantages and will help you select an optimal retirement plan. An accountant will help you allow the appropriate amount of money to achieve your goals and maximize your tax savings. They will advise you of any potential penalties should you need to make early withdrawals.

  • Financial Planner

Financial planners create a blueprint for your long-term financial goals. They provide expertise about how to invest and give you advice on the best possible way to manage your money. Once you’ve settled on goals for retirement, a financial planner will be able to develop a strategy to manage your investments and maximize your retirement income.

  • Estate Planning Attorney

Your estate planning attorney can help you protect your assets by creating a will, setting up a trust, and creating a power of attorney. Having a power of attorney will safeguard your business and your finances in the event that you become ill or incapacitated. They can also assist you and your heirs in understanding and minimizing estate taxes. Legal Zoom is an affordable online legal service that helps prepare legal documents for small businesses and individuals.

Create Your Exit Strategy  

Will you sell your business, pass the torch to someone else, or close it entirely? If not, then begin giving it some consideration. Even if your retirement is many years away – creating a strong exit and succession plan now is an investment in your small business’s financial future.

Think of selling your small business much the same way you would stage your home before putting it on the market. In order for your business to be attractive to buyers or successors, it will ultimately need to be able to run smoothly without you. That means investing the time and resources now to build the right team who will be adequately prepared for your eventual exit from the company. And it means having a business that runs like a well-oiled machine with streamlined processes and organized finances. Keeping clear historical financial statements will help buyers see the value in your business and the potential for the future.

According to the SBA, the value of your business can be determined by many business valuation methods. Most valuations are a combination of two factors:

  • Assets, such as cash, receivables, inventory, equipment, and real estate.
  • Revenue stream, that is, net profit over time.

No matter what option you decide on, you’ll need to take steps to ensure a smooth transition. If you choose to sell your business, effective succession planning will show prospective buyers that your small business has the potential for long-lasting survival and viability.

Final Thoughts

Celebrate National Financial Awareness Day by making your long-term financial planning a priority. Learn more about our small business funding services that can help you get started today to plan for tomorrow.

Looking for short-term financial tips for small business owners? Check out 5 Key Tips for Managing Your Small Business Finances.

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