Entrepreneurs deserve long retirements as much as the salaried men and women who work for them. Unfortunately, planning for retirement when others’ livelihoods ride on your decisions isn’t so easy.
Use this sequential roadmap to get your retirement planning on track — and prepare to hang up your hat while you’re still young enough to enjoy it.
Speak With a Capable Investment Adviser
Before you venture too far into the retirement planning process, find and consult with an investment adviser capable of advising small business owners on personal retirement decisions. If you have yet to set up a comprehensive benefits package for your employees, you might broach the topic during your consultation as well. Once you’ve set your expectations and centered your thinking, you can move on to the more specific, action-oriented steps of your retirement planning process.
Run a Comprehensive Cash Flow Analysis
Next, run a comprehensive cash flow analysis for your small business. While this may come off as a mundane step for hands-on owners intimately familiar with the financial workings of their businesses, it’s absolutely crucial to paint an accurate picture of your financial health. You need to know precisely what you can afford to set aside in the Self Invested Pension Plan (Sipp) you’ll set up in the following step.
Set Up a Self Invested Pension Plan (Sipp)
Did you know that you’re likely eligible to save into a private pension plan, known as a Self Invested Pension Plan (Sipp)? Far too few small business owners take advantage of this allowance: according to the Federation of Small Businesses, just over 30 per cent of U.K. entrepreneurs contribute into a Sipp, and some 15 per cent have no retirement savings at all. You’ll need to mind annual contribution limits and other important limitations. Speak with a financial adviser for guidance pertinent to your situation.
Look for Opportunities to Increase Your Contribution
Take the opportunity to trim unnecessary business expenses to further improve your cash flow. The nature of these cuts will depend on the nature of your business. Again, mind contribution limits that may affect your ability to make additional deposits to your pension scheme, and don’t hesitate to speak with a financial adviser for further guidance.
Devise an Exit Strategy
Begin thinking ahead to your exit. Determine the exit strategy that makes the most sense for your needs: winding up the enterprise altogether, selling the business to a third party, or transferring ownership to the next generation. Whichever you choose, expect the process to take several years from start to finish. If you intend to retire in the relatively near future, you’ll want to plan your exit sooner rather than later.
Don’t Assume Your Firm’s Sale Will Fund Your Retirement
Avoid overestimating your firm’s value. If you stake your retirement on a favorable sale, you’re set up for massive disappointment with unwelcome quality-of-life implications. Do well to have a nest egg separate from your firm’s paper value.
Plan Early, Plan Well
It’s never too early to get a head start on retirement planning. This sequential roadmap provides a basic overview of the planning process, but it’s no substitute for consultation with a professional. Take that step now, while you’re still enjoying yourself.