In addition to retirement savings plans that benefit both the business owner as well as any employees, there are additional considerations that the small business owner should consider.
Many small business owners never want to retire. However, there usually comes a time when leisure interests – or less fortunately – death or a decline in health cause a business owner to leave their business.
Most business owners hope that their business will continue to thrive even after their full time contribution is done. However, few business owners have an official strategic plan in place for their eventual departure. To succeed, you’ll need a solid exit strategy. Without a professional business valuation and an executable succession plan, you may not be able to realize your vision of life beyond the business.
General Planning for Your Business at Your Retirement
Just as it is important to have a will and estate plan for your personal assets for when you die, it is important to have a plan for your business after you retire.
Below are a few strategies to consider. You may find it useful to create your business continuation plan with a professional financial advisor.
- Valuation and Succession Planning: Most owners do not have a professional business valuation. As a result, even if they do have a succession plan, it cannot be enforced. If something should happen to an owner, such as a death or disability, the business could collapse.
Family-owned businesses are especially vulnerable, since many owners opt to keep the business in the family upon retirement.
- Financial Strategy: Only 34% of all owners have a formal financial strategy, because they don’t have time to create or execute one. A financial advisor can help owners find cost-efficiencies by having business dollars pay for their personal and professional financial needs. The financial strategy would include a retirement income strategy, an investment strategy, and life insurance.
Insurance to Protect Your Small Business – Business Continuation Strategies, Also Known As Business Life Insurance
As a small business owner, you know that much of the value of your business is in your own and your executives’ own person or human capital. Without you, the business is not as likely to be successful. As such, it may be prudent to plan for scenarios for which you or key employees die or become disabled.
The following is a summary of some of your insurance options, although you will probably want to consult with an experienced business and retirement planning advisor.
- Buy Sell Strategies: A Buy Sell agreement is a strategy to insure that surviving business owners have adequate funds and an agreement in place to purchase a departing business owner’s share of the business at a previously agreed upon price. These policies are usually used in the event of death, disability or retirement. These agreements also allow the remaining partners to retain control of the company vs. having the family or estate of the deceased or departing partner influence the direction of the firm.
Buy sell agreements are usually funded by a life insurance product purchased on the lives of each key business owner.
- Key-Man Insurance: Key-man insurance is also usually a life insurance policy. In this case, the policy is designed to cover all costs your business might incur if you – or a key employee – became disabled or died. The insurance is meant to cover any losses the company might incur in the event of your sudden absence – lost sales, diminished productivity. The insurance can also help cover the costs of finding and training a replacement.
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