Across the country, millions of small business owners may be working hard to keep their companies improving steadily, but some polls show that, when they do so, they may not actually be putting themselves in the best positions, long-term. That's because this kind of effort does little to help them prepare for their eventual retirement.
Polls show that many owners generally don't have formalized legal succession plans in place, and that can be a major impediment to their financial success when they do finally retire. That's because there may be little or no way a company can continue as it once did – thus helping to provide some income to the former owner even after they've called it a career – without contracts and similar documents in place to help them make those issues as clear as possible to everyone involved.
Why is that important?
For instance, suppose a small business owner is planning to turn his or her company over to its long-time second-in-command. This may be all well and good, but unless the stakes are clearly spelled out by a legal agreement (i.e. "the original owner will receive 10 percent of profits each year") then the waters can get a little murky if things are being operated on handshake agreements and informal understandings. Having things clearly spelled out contractually helps to remove any guesswork that might otherwise be involved in the process down the road.
Small business owners should formulate retirement plans earlyWhat else should owners be doing?
In addition to this, other data shows that small business owners are generally not paying into retirement savings accounts like they would be if they worked for someone else. While this is understandable – it is, after all, a form of "betting on oneself" – it's probably not advisable. Often, the thing that best helps small businesses succeed is the owner's drive and enthusiasm for what they do, so when an entrepreneur retires, success or failure is out of their hands, and therefore cannot be counted on to provide income for what could be decades.
As a result, it might be wise for small business owners to talk to their financial advisors about whether they should be doing more to improve their personal long-term financial health, and see how the strategies they develop may end up fitting into their companies' overall financial plan.