By Jonathan Howard, CFP®

If you’re like most small business owners, your business is likely your pride and joy. And it probably demands a large portion of your time. According to the Bureau of Labor Statistics, small business owners have accounted for 66% of net new jobs created since 1996. It would not be an exaggeration to say that small businesses are the beating heart of the American economy.

As part of the vast community of over 30 million U.S. small businesses, we understand the challenges of starting, managing, and growing your enterprise. In the midst of your efforts in creating nearly 13 million new jobs in the last 25 years, it’s possible you’ve unintentionally overlooked your own financial well-being. In this article, we outline the top 5 common retirement mistakes small business owners tend to make and offer guidance on how to avoid them.

1. Neglecting Personal/Family Retirement & Financial Planning

It’s easy for business owners to overlook their personal financial well-being—especially for an event that seems far away, like retirement. When you have a full plate with your business and other aspects of your life vying for attention, your retirement planning may take a back seat. However, neglecting your retirement plan could have serious consequences.

The longer you wait to develop a retirement plan, the greater the risk of not retiring on your terms. People say, “Time is money,” and it is also a helpful resource when planning for distant goals. The inverse is true, too; the lack of time can be a difficult challenge to overcome. As a business owner, it’s important to have clarity regarding what you want retirement to look like for you, so you can start building a plan to achieve it.

Will you continue running your business? Are you planning to pass it on to your children or grandchildren? Or do you plan to sell it and retire with the sale proceeds? What sale price would be enough to fund your retirement lifestyle?

With a skilled financial advisor, you can take the first steps toward establishing a comprehensive retirement plan that satisfies the needs of your business finances, your family finances, and your personal retirement planning.

2. Not Having a Business Succession Plan

You’ve poured your heart and soul (as well as many valuable years of your life) into building a successful business. Setting a business succession plan outlines essential details regarding:

Business continuity
Leadership succession
Ownership transitions
Who will buy the business and how will they fund the purchase?

If anything happens to you, or even your employees, there should be a clear plan of action that helps maintain the longevity and success of your business.

Another key component of a business succession plan often includes buy–sell agreements and key man life insurance. A buy–sell agreement outlines the process of buying out a deceased or departing owner’s share of the business. Key man life insurance supplements the business with financial support in case a key employee or owner passes away unexpectedly.

Without these succession planning components, your business could experience immense uncertainty if anything happens to you or another owner.

3. Not Choosing the Right Entity Structure and Business Insurance

Selecting the appropriate entity structure for your business, such as an S corporation or C corporation, has significant tax and liability implications. The choice can impact your personal liability, taxation, and even your ability to raise capital.

To choose the most advantageous business structure for your business, it’s important to research your options thoroughly; and consult with a financial planner professional for an informed decision that aligns with your business goals.

Additionally, business insurance is non-negotiable. Proper entity structure may protect you from liabilities arising from your business, and it is important to safeguard the assets of the business. An appropriate level of business insurance shields your business from unexpected events, such as lawsuits, property damage, or employee injuries.

Investing in the right insurance coverage safeguards your business’s financial stability. A financial planning professional can help you assess your insurance coverage and identify any gaps.

4. Inadequate Employee Benefit Structures

If you were one of the businesses affected by recent labor shortages, you know how crucial it is to attract and keep a dedicated team. Offering employee benefits like these helps your business remain competitive in the labor market.

Retirement plans
Health insurance
Dental and vision
Other perks

Without structured employee benefits, your business could experience higher turnover or face a lack of applicants for open positions.

5. Neglecting Investment Diversification

A small business may be the riskiest part of a business owner’s financial picture. If a small business succeeds, it can change the lives of the business owner’s family for generations. If it fails, it can result in total loss, including bankruptcy. Over-relying on your business’s success to provide financial stability could backfire if the market shifts or the business faces a dip in profitability. Diversifying your investment portfolio beyond your business can help reduce the risk of putting all your eggs in one basket.

It is smart to build a nest egg outside of your business. Constructing a diversified investment portfolio can involve some or all of the following instruments:

Stocks for growth and tax benefit potential
Bonds for income and stability
Real estate and/or commodities for diversification and tax benefits
Structured investments featuring buffers against loss
Insurance products for protection and guarantees
Money market funds and cash for liquidity and safety
Precious metals for inflation protection and diversification

During periods of economic downturn, the right diversification strategy could cushion potential blows to your portfolio, shield against losses, and potentially provide tax benefits.

A Partner Who Can Be Your Guide

As financial advisors at SeaCure Advisors, we understand the demands and responsibilities business owners like you handle daily. You hold an in-depth knowledge of your business, and you deserve a financial partner who is experienced and able to support your financial landscape.

With my credentials as a CERTIFIED FINANCIAL PLANNER™, I’ve assisted business owners in steering clear of financial pitfalls. I specialize in creating personalized plans that seamlessly integrate both personal and business needs. If you’re ready to put your small business on the path to financial success, I invite you to reach out today. Schedule an introductory call online, call me at 877-328-4037, or email info@seacureadvisors.com. I look forward to hearing from you!

About Jonathan

Jonathan Howard is a financial planner at SeaCure Advisors, a financial services firm committed to developing custom-tailored financial plans to help clients meet their specific goals and needs.

Prioritizing education, diligence, and communication with a high emphasis on tax planning, his goal with everyone he works with is to help them use their resources as tools to enhance their prosperity and well-being.

Prior to entering the financial services industry as a licensed life & health insurance agent, Jonathan spent 17 years in Los Angeles, working as an editor and visual effects artist. Jonathan holds a bachelor’s degree from Middlebury College as well as the Series 7, 63, 65, and CERTIFIED FINANCIAL PLANNER™ designations. He has contributed to financial articles published in Forbes, USA Today, Fox Business, US News & World Report, Kiplinger, Yahoo! Finance, and more.

Jonathan lives in Lexington, KY, with his beautiful and patient wife, two vivacious daughters, and two spazzy dogs. When he’s not working, he enjoys playing guitar, spending time outdoors, and family time. To learn more about him, connect with him on LinkedIn.