Owning a business often means you’re 100% focused on the success of your company. The idea of what comes next when you’re older and would like to slow down is more of an afterthought. This is a mistake.
Whilst we like to feel that we’re fully in control of our companies, you never know what can happen in the future. Life and business are unpredictable. The company’s fortunes may change due to a switch up in consumer behavior or a different type of product superseding what you currently offer. For these reasons alone, it’s worth looking at financial planning.
In this article, we cover a few topics for business owners thinking about financial or retirement planning perhaps for the first time.
Do You Think Your Business Will Be Sellable?
Not every business is sellable. If it’s too closely tied to your identity, requires your unique expertise or you’re the only employee, selling it later may be difficult. Therefore, don’t count on cashing out by selling the business unless it’s already clearly marketable.
To understand better what types of businesses are attractive to buyers and how to adjust your business operations to get it ready to sell, consider picking up a copy of Built to Sell. It’s a business parable written by John Warrillow which helps guide entrepreneurs on how to position their company for a life after them.
Understanding the Basic Numbers Behind Retirement
To keep things simple, whatever you spend in retirement it’s necessary to have at least 25 times this amount in investments.
The 25 times rule is based on the Trinity Study with subsequent follow-ups which confirmed that when withdrawing 4% annually from a balanced portfolio (with inflation adjustments), it lasted 30 years. At that point, the investments had all been sold.
Backtesting using Monte Carlo simulations (which randomize historical investment returns to determine the highest withdrawal possible that survived three decades) confirmed that approximately 4% was the answer.
Due to the fact that everyone’s situation is unique, it’s sensible to get financial planning in Minneapolis. This way, you can get a tailored financial plan for your individual circumstances.
Be Prepared to Save More If Starting Later
The old advice to save 10 percent of your income only works out for people who get started in their teens or early 20s. Most people start investing much later in life. As a result, they need to save and invest a significantly larger percentage of their income to amass enough of a nest egg to reach retirement. Of course, you might be able to sell the business to pad out your savings too, but don’t count on it.
What you can save is a function of your current income and expenditure. It’s only possible to reduce expenses so far, but as a business owner, expanding the bottom-line doesn’t have a specific limit. If it provides added motivation, use retirement planning as an additional push to grow the business to fund your freedom from it.
Don’t leave it too late to consider the future. The cost of healthcare is rising, and people are living longer than ever before due to medical advances. Make sure that you’ve accumulated enough.