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Small Business Owners Who Need to Plan for Retirement

Small business owners often worry about retirement. While you likely love being an entrepreneur, it's not uncommon to feel a certain amount of fear at not having the security of working for a big company. Starting your own business and keeping it profitable year after year is an interesting mix of exhilarating pride and crippling fear.

small business owners retirement planning

Small business owners don't always have a retirement plan

In the United States, there are roughly 23 million* small business owners and we admire those brave souls who break out of their comfort zone to start a business. After all, being your own boss is part of the American dream.

But for some small business owners, the “dream” of being their own boss has turned out very differently from what they had imagined. Why?

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In large part, because small businesses are just that: “small”. They are “small” in terms of workers (often a one-man or one-woman show) and “small” in terms of income.

Even among somewhat larger businesses, a low percentage of them make $1 million in revenue and an even lower percentage does more than $10 million.

But having no employees (or only a few employees) doesn't mean that these business aren't generating any income; it is totally possible an individual working as a financial advisor, a health coach, an internet marketer, or an attorney can bring in anywhere from $100,000 to $300,000 per year.

Why a high income doesn't equal a retirement plan for small business owners

But the problem is that their income is classified as ACTIVE INCOME; if the individual stops working, the money stops coming in.

In other words: the business may bring in lots of money, but it doesn’t necessarily build wealth.

A business may bring in lots of money, but it doesn’t necessarily build wealthWhy?

This is the case for one of two reasons:

1) The same way that entrepreneurs learn to bring in money, the money often goes out just as fast. They either pump their profits right back into the business or let the extra cash flow go to their head and start buying the toys and cars they always wanted… assuming that the flow will never stop. But even if that is not the case, there are always new business needs which require new investments and that hard earned money often just goes back into the company…


2) They build a business which might provide cash flow but can't be sold, or at least not for much because the business is tied to their name. For example, people may come to a certain attorney because SHE is darn good; they sign up with that one health coach because of HIS ability to get people on the right path; they call that specific chiropractor because HE does great work and fixes them up quickly.

In each case, the person IS the business, and as a result if they stop, the business stops, and with it so does the income. And as a result of that such a business is either not sell-able – or at least it can’t be sold for a high multiple. The owner simply doesn't have a big brand that can live on without them. The moment the owner stops doing what they do, their business stops generating income.

small business owners retirement plans

Are you a business owner who is worried about retirement?

Should small business owners sell their businesses?

Even if an owner does manage to sell their business, they may be disappointed to learn that it can be sold for way less than what they think. We all see those Dot.com businesses like Instagram that have zero income, zero revenues and sell for billions, but that's not reality for the regular small business. in the REAL WORLD, a business depending on it's industry and size might only sell for about 1 to 3 times Annual profits (EBITDA). that means even businesses doing 7-figures in revenues only sell for the low to middle 6-figures. And while that is not bad, consider that this a business selling for $600K (before taxes) might have produced $200K in income each year for a long time and the entrepreneur selling the business now needs to live forever of the $600K after he/she paid taxes on the sale amount. it becomes clear that even an above $500K sale price really won't create the financial independence they might have been looking for.

And that is the higher end of the “Small business” world. A quick online search reveals that pizza restaurants, retail shops, and plumbing companies are being sold for less than $50,000-$100,000. Of course, that number may go up if the sale includes underlying real estate and high tech equipment – particularly if it is an old fashion brick and mortar business but usually the real estate and/or equipment also comes with mortgages or is just worn out and needs to be replaced.

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Look at this situation from the perspective of the business owner – they are used to making good money, they have adjusted their lifestyle to it, and they likely cringe at the thought of having to live with less. They don't want to reduce their lifestyle, they don't really have an asset that a(at least not one that’s worth as much as they think), and if they stop working their income will stop almost instantly.

And even those business owners who do save part of their income tend to dip into that savings when they have a down year, and before they know it the savings disappear again into the business.

So what do business owners do when faced with that situation? Number one, most typically ignore it and just focus on the task at hand, which to make money TODAY, so that they can keep running the business TODAY and pay their bills. In essence they do what they do best: They work harder and harder and the cycle repeats itself. But at the end of the day, there is still not much to show in terms of long-term retirement funds.

Now, even if the above situation doesn't apply to every single business owner out there, and even though some business owners plan diligently for their retirement down the road, the sad fact is that many folks find themselves in a vicious cycle of earning to spend with no end in sight.

small business owners retirement savings

Business owners often spend all the money they make

For good or for bad, it costs a lot of money to run a business, overhead, taxes, new equipment, the ups and downs of the market… it all costs money. Plus it also costs money to show the world that you have made a success of your personal life and career and you want to enjoy it, darn it. So you get the car, the house, the office, the vacation… and it's all awesome, after all you worked like crazy to be able to afford it. Yet it all puts you deeper into the “Financial Hamster Wheel of Hell” only now not on the employee side but on the employer side. And at the end of the month all these “necessary” things end up eating the majority of an entrepreneur’s profits – even a large profit.

The earn-to-spend cycle is exhausting, and after running in that hamster wheel from Hell for a while, the frustrations start creeping in… and soon enough the first collateral damage appears.

It might not be a heart attack that leaves behind a grieving spouse and five kids; more likely, the collateral damage might appear in the form of burnout, sickness, weight problems, difficulties at home and with the kids because the entrepreneur is never there.

Just to keep up the current lifestyle, just to be able to cover the increasing overhead, and “provide for the family”, the business owner never sees their family and knows that they will never be able to truly retire – at least not while maintaining their current lifestyle.

And that is not even talking about the true measure of success, which is happiness. After all, isn't all we do in life really to make ourselves HAPPY?

What kind of retirement should small business owners plan for?

Ask yourself the following questions:

– Is your life (the way you live it right now) making you happy?

– Is your business (the way you run it right now) making you happy?

– Even if you love what you do, do you have a plan to have enough money to retire on your own terms?

– Even if you love what you do, have you ever thought about how you will be able maintain your current lifestyle?

Most people haven't given much thought to the above questions. Or even if they have thought about retirement, they delude themselves into thinking that at some future point they will somehow make much more money than they do right now and will need less money to live on. But based on common sense, how likely does that seem?

But there is a solution.

That solution is not running out and selling their business. The solution is not to cut back, sell the house and the car, live stressed out and in misery for the rest of their life.

Quite the contrary.

The answer is to just make some minor tweaks, take a small portion of the profits produced by your business and leverage those profits into an increasing amount of separate streams of income. Those streams of income should be something that doesn’t require lots of time to manage, (you are busy enough in your business) yet should provide big returns so that it is worth it; and they should, in a reasonably short time, create enough income to let the business owner retire at any time while keeping the lifestyle they have grown accustomed to.

In other words, we are talking about investing, and in particular Real Estate Investing.

real estate retirement income

Is real estate investing a good option for your retirement?

For many business owners, the ideal way to prepare for their retirement and financial independence has been real estate investing. In particular, they have sought out methods that can be learned in a short time and that can start generating income within a few weeks or months of getting started.

Not only is real estate investing an age old proven way to provide long lasting cash flow for you and your family, it's also perfect for a business owner because most business owners already have staff, and can leverage that staff by having them do the few extra pieces needed in real estate like filing documents, calling the occasional repair company or sifting through resumes and helping to look for a new property manager or contractor. As a business owner you are in the ideal position to leverage what you already have, and add to it something that will allow you financial freedom for the rest of your days.

If that describes or attracts you, then click below and sign up for a free educational presentation that will describe what many business owners are doing to create more income on the side, using that income to prepare for a retirement of comfort and worry-free living.

Small business owners are an incredibly important part of the American economy, but too many of them are carrying a heavy load with no end in sight.

If only they knew that was a better way.

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