What is your small business retirement plan?
Anyone who has ever tried to grow a small business knows that it has at least one behavior almost exactly like a teenager: It’s always asking for more money than you can fund. But unlike a teenager, your business doesn’t have one outstretched hand – it has dozens.
Indeed, Blasingame’s 3rd Law of Small Business states: “It’s redundant to say ‘undercapitalized small business.’”
As children approach adulthood, their parent’s personal gratification is increasingly deferred. That beach-front condo or new sports car can’t compete with paying for braces or college.
Similarly, for the owner of a growing small business, the gratification that is typically deferred is funding a personal retirement plan separate from the business. Too often, funding a 401(k) plan, for example, takes a backseat to making payroll, expanding the online strategy or funding sales growth.
We wanted to know how small business owners were handling retirement planning, so we asked my radio, Internet and Newsletter audiences to select the option that best describes their plan. The good news is that four-in-ten said, “I am funding a retirement plan (IRA, 401(k), etc.) separate from my business.”
Unfortunately, the other 60% of our sample conformed to the teenager metaphor. For example: “I haven’t established a plan because my business always needs more cash,” was chosen by 23%. One-in-five of our respondents said, “I have a retirement plan, but currently am not able to fund it.” While slightly fewer, 17%, said, “I am counting on my business to provide for my retirement when the time comes.”
On this last point, whether through a sale or continued operation, some business will produce enough dependable income to fund the successful retirement of the owners. But the reality is, for many reasons, this is not a basket to put all your retirement eggs in.
There comes a time when a growing company’s operational and market critical mass should produce sustained profitability. At that point the business owner should act like a parent when the last kid is out of college – stop deferring gratification and start accruing it, like funding a separate retirement plan.
Just like weaning an adult child off of the family payroll, allocating profits to the personal retirement plan of the owner requires intention, planning and even some tough love.
Write this on a rock … Don’t leave all of your retirement plan eggs in your small business’ basket.
Jim Blasingame is creator and host of the Small Business Advocate Show.
Copyright 2011, author reatins ownership. All Rights Reserved.
