When you are a business owner, you not only have to worry about your own personal retirement funds, but you also have to make sure that, if something happens with the business, you have enough money to help it get back on track. While you may already have personal retirement plans set up, that does not guarantee that you will have the extra funds the company may need down the line. It’s best to ensure that you have financial options for each to avoid getting your money tied up in the business after you’re retired.
To help you determine the best strategy for you, we’ve asked eight experts from Forbes Finance Council to share the top things you should do to build retirement funds for yourself as well as your company.
Forbes Finance Council members share their expert tips on saving for retirement while also funding your business.
Photos courtesy of the individual members.
1. Keep ‘Rainy Day’ Funds
A well-planned business should not depend on a cash infusion from the owner to survive, which often occurs because the owner draws too much cash out of the business. The best plan is to keep the business and personal finances separate and have two separate “rainy day” accounts. Determine your business “rainy day” amount by doing some stress tests: What would happen if sales dropped 25, 50 or 75%? – Vlad Rusz, Vlad Corp. USA
2. Own Your Real Estate
To lease or to own your real estate—that is the question. Both have merits and advantages, but a great way to build wealth or equity that you can “tap” into in the future is through owning your real estate. The equity can be “tapped” by the owner for his own personal needs or for a cash infusion for the business through selling the real estate or through debt borrowed against the equity. – Noah Brocious, Capital Fund I LLC
3. Utilize Two Savings Accounts
Business and personal financials aren’t too different in their best practices. We are big fans of keeping it simple and having 10% of cash flow go into a savings account for the business and another 10% go into a savings account for your personal. It’s an easy way to save for the future. – Roy Ferman, Seek Business Capital
4. Use Self-Directed Accounts
Most people are unaware that they can still self-direct a retirement account even beyond retirement. Retirees who are business owners, who may already have a SEP IRA or another qualified plan, can transfer funds from one of those accounts into a self-directed account. They can use those funds to self-direct any qualified investment of their choice, such as real estate, private equity, notes, etc. – Jaime Raskulinecz, Next Generation Trust Company
5. Set Up Options For Yourself And Your Employees
Over 60% of small business owners blame their small size for not offering a retirement plan. A SEP IRA is a low cost and easy to administer retirement plan for smaller firms. 401(k) plans offer even more savings potential and allow the business owner to sock away up to $56,000 a year ($62,000 over age 50). The right retirement plan will protect your financial security and that of your staff. – Stacy Francis, Francis Financial, Inc.
6. Spread Out Your Savings
A good way to plan for retirement and your business’s future is to spread your savings around to more than one account. You could do this through SEP IRAs, SIMPLE IRAs or a 401(k). Any combination of these plans can help secure your retirement and fund your business in your golden years with careful strategy. Diversify your savings so you won’t have to worry about unexpected expenses. – Greg Herlean, Horizon Trust
7. Be Conservative And Have Reserves
I performed a case study of Amazon in 2002 when I was in business school and there was a principle Bezos has followed for years that I apply to my business to ensure unplanned cash outlays don’t disrupt my business or personal life. If you plan your future expenses against your known revenue conservatively while holding appropriate cash reserves, then when problems occur you can weather the storm. – David Miller, PeachCap Inc.
8. Separate Your Funds
If you’re a small business owner, do not bank on selling your business to fund your retirement—instead, look at them as two separate entities. As a business owner, set up a retirement account of your own such as a SEP IRA or Roth IRA that you can contribute to regularly and continue to invest in growing your business to meet maximum potential for when or if you do decide to sell. – Jared Weitz, United Capital Source Inc.