We’re taught that the only good business is a big business. The truth is that for most business owners they will never have a big business. I think that for most business owners having the goal of a big business will just move them heartache and heartache.
First, there is no rule that you have to have a big business. A big business requires a thought process and skills that you might not have and might not even want to develop.
You do want to choose a business model and size that fits for you. If you make the wrong choice, you can spend years spinning your wheels and not focusing on what’s important in your business.
A true story
I had a client who started working with me. At first she just wanted to learn how to make more money in her business. As time went on she decided that she wanted to grow her business.
The problem was she never really thought through what growing her business would mean to her personally. To her, growing her business meant adding more people and complexity. As it turned out, the right way to grow her business would have been to grow the amount of free cash she had and to save lots of it for retirement.
What you do need to focus on.
If you have a small business there is nothing wrong with that. The issue with having a small business is you have to realize that you’ve really bought yourself a job. When you have a job, getting to retirement means saving for retirement.
Even if you are able to sell your business, it won’t provide you enough for retirement. Let’s take a look at a business that might look a lot like yours.
Your business could have only one or two employees. You might bring in somewhere around $200,000 in gross revenue. After paying expenses you are left with $125,000 per year. After your living expenses you are only left with a few thousand dollars per year for retirement savings.
You have a dream that when you it’s time to retire you can sell your business and ride off into the sunset of a happy retirement. If your business creates numbers like the one above, there is no way for you to sell your business and retire.
What the business would bring.
If you could sell the business and you got top dollar for it you might get around $600,000 for the business. You’re only going to get about 50% down and you’ll be holding paper for the other 50%. There’s a huge risk in just doing that.
That means that after taxes and expenses you would be left with maybe $400,000. If you take that money and invest it you could expect to spend between 3 and 4% of the principle every year. This would give you about $12 to $16,000 per year. This is far less than the $125,000 you are spending today……even with Social Security you’re not going to come close to have a financially secure retirement.
You end up just keeping at it.
Instead of selling your business you realize that the only way you can maintain a lifestyle that’s close to what you’re used to you’ll need to continue running your business forever.
You don’t have to do this. It’s the result that lots of business owners get just because they don’t think all of the way through what their end game looks like. It’s what you’re going to get unless you take steps that allow you to retire.
What you need to do.
If you ever want to leave your business and you run a small operation you’re going to have to think about what’s going to happen twenty or thirty years down the road. You’re going to have to become a regular saver. You’re going to have to think of yourself as an employee and not a business owner who has an asset that’s going to allow them to retire in comfort.
I want you to think about saving at least 20% of what you make every year. If you do that for a long period of time, you’ll have put away enough to retire comfortably. Instead of being able to spend a few thousand dollars a year, you’re going to have a chance to maintain the lifestyle you presently have.
You need to find a financial planner that’s going to help you figure out what it’s going to take for you to retire. You might be depressed after the initial analysis. Your choice is to stay depressed or do something about it. I’m hoping that you’ll choose the later and put together a savings program that will get you comfortably to retirement.
Being your own boss is a great thing. Working for yourself and serving your customers can be really satisfying. Just do me a favor. Please remember that you’re going to be old someday…..and you’re going to want to have financial security. It’s part of what it takes to successfully run your own business.
What do you think? Are you willing to get out of your comfort zone and really see what’s in store for your retirement?
Tags: Business succession planning, retirement planning, business value