If you own a small business, you have already made quite a life for yourself, but just as employees look forward to eventually retiring, you likely want to reach that point as well. The path will just be a bit different for you. Here are five tips to work toward retirement as a small business owner.

1. Set Up an Actual Retirement Plan

Make sure you set up a retirement plan, if you haven't already. The type you choose will depend on your own preferences and circumstances. You might elect to go with an IRA, a 401(k) or some variant of either. In 2001, changes to federal tax law made 401(k)s a better and more flexible choice for small businesses whose only eligible participants in the plan are the business owners and their spouses, if they are also employed by the business. If you are unsure about which plan will work best for you, speak with an expert to find the right option.  

"There are a lot of retirement plans available to small business owners that are not available to employees of larger businesses," says Kayla Harrison at U.S. Chamber of Commerce.1 "There is flexibility within each plan, including who contributes, how much is contributed, what types of assets qualify under the plans, and the dates the plans can be drawn from. Considering these and other retirement needs and consulting with a financial advisor to explore each potential plan’s terms can help small business owners see which is right for them."

2. Create a Succession Plan

If you intend for your business to go on once you retire, you'll need a succession plan. This will take some thoughtful consideration, especially if you don't have a family member who will be taking over. You can always sell, but many business owners want to see their legacy continued under the leadership of someone who is already close to the company.

"First, speak with a lawyer to determine the legal requirements for creating a succession plan," says Katharine Paljug at Business News Daily.2 "Make a list of people or groups who may want to take over your business. It could be an employee, a group of employees, a partner, a vendor, or a family member. Consider whether any of those people or groups are prepared to take over your business and whether they're capable of buying it. Consider any work that may need to be done upfront to prepare your successors to take charge, as well as any controls that will need to be put in place."

3. Automate Your Savings

Always save as much money as possible. Make sure you have a budget for your personal finances, and try to build regular savings into that. Set up direct deposit so that when you pay yourself, it automatically goes into your checking account, and then transfer a set amount each pay period into your savings account.

4. Increase your Salary Over Time

While you may prefer to take a smaller salary in order to keep as much money in the business as possible, don't be afraid to give yourself a raise from time to time when business is good. Try setting specific financial goals for the company and increasing your salary by a reasonable amount when you hit each goal. Rather than giving yourself a raise the way you would an employee, tie your own raise to actual business performance. You can always give yourself a pay cut in the future if you need to.

As you make more money to add to your personal finances, you can put that into savings, contribute to your retirement plan, or otherwise invest for the future.

5. Focus on Your Business Now

Probably the best way to prepare yourself for retirement as a small business owner is to focus on growing the business right now. The better shape the business is in, the more you can set aside to secure your own future. Find ways to get more customers and to get those customers to come back and spend more.

The nice thing about looking forward to retirement as a small business owner is that, in some ways, you control your own destiny. The harder you work to make your business successful, the better positioned you will be for retirement when you're ready.

1. https://www.uschamber.com/co/start/strategy/retiring-as-business-owner

2. https://www.businessnewsdaily.com/10276-prepare-for-retirement.html


The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice. Any views expressed in this article may not necessarily be those of Nevada State Bank. Nevada State Bank is a division of Zions Bancorporation, N.A. Member FDIC