Your Business Shouldnt Be Your Only Asset

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Your Business Shouldnt Be Your Only Asset

If you’re a small business owner, you may think of the business itself as your most important tool for building wealth. And to some degree that’s probably true — you put a significant amount of money into the business to help it grow, and when you’re ready to retire you may be able to sell the business and get your investment back, along with any appreciation in value. But while it may seem like you have it made, don’t be fooled into thinking you can rely on just this one source for your retirement nest egg. You need to consider building wealth outside of your business as well.

There are certainly rewards that come with owning a business, but it also comes with plenty of risks. Sometimes circumstances beyond your control can have detrimental effects to the value of your business. Additionally, your business could change dramatically between now and the time you retire. As a result, it’s important to have a backup plan in place in the event things don’t quite work out as you had hoped.

One of the first places business owners should start is with a good retirement plan. If you’re not already doing so, consider contributing to a traditional or Roth IRA to enjoy the benefits of tax-deferred or tax-free growth on your retirement savings. If your business doesn’t have a qualified retirement plan — and as long as your spouse is not covered by a qualified plan through their employer either — you can take a deduction on your income taxes of up to $4,000 ($5,000 if you’re 50 or older) in traditional IRA contributions for 2007. (If your business has a retirement plan, your contributions may or may not be deductible, depending on your income; Roth IRA contributions are never deductible.)
While that’s a good start to retirement savings, a qualified plan for your business will let you save much more. There is a wide variety of available plan options, and some can be established with minimal expenses. Just to give you an idea, plan types include: SIMPLE IRAs, SEP IRAs, 401(k) plans, owner-only 401(k) plans, 403(b) plans (for tax-exempt 501(c)(3) organizations), and defined benefit (traditional pension) plans. The best plan for your business will depend on several factors, including the objectives you want to achieve.
One thing to keep in mind is that even if you contribute the maximum to an IRA or retirement plan each year, it may not be enough by itself to provide you with a financially secure retirement. To help you in your goal of preparing for retirement, you should probably have other savings as well. Once you’ve sized up your retirement savings options, you may choose to invest in an IRA, a qualified plan, a taxable account, or maybe even some combination of the above.
Be aware that the returns on your marketable investments may be less that what you’re used to earning in your business, but that may actually work to your advantage. These investments may come with less risk and greater liquidity. They also provide diversification, which is one of the keys to any successful investing strategy.
Your business is definitely one of your most important assets, but it doesn’t have to be your one and only. Plan ahead and invest in your retirement as a whole, using a combination of other assets to complement your investment in your business.

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