When it comes to running their companies, most small business owners have to keep so many plates spinning all at once that it’s hard to think about anything other than the various tasks at hand. As a consequence, a large number might not spend a lot of time thinking about their retirement options, and that could be especially troubling for older entrepreneurs especially.
These days, it seems that instead of having traditional retirement savings plans, many small business owners are hoping their companies will serve as some sort of safety net, according to a report from the Wall Street Journal. But some experts say that the problem with this kind of idea is that the way an entrepreneur might view his or her own company can vary greatly from the valuations made by those to whom they might hope to sell it, and as such, they think it’s wise for owners to be a lot more diverse in building their savings vehicles.
For instance, financial planner Tom Orecchio noted that he once had a client who thought his company would be worth about $1 million, but eventually had to settle for the high bid on his company of just $725,000, the report said. While that’s still a large amount of money, it’s down 27.5 percent from the original price hoped for. That, in turn, had a significant impact on his ability to retire as comfortably as he might have liked, despite the fact that he had another $700,000 in other savings accounts. The end result was a loss of as much as $1,000 per month in retirement income.
Why can values come in so low?
That story about buyers not valuing a company as highly as an owned does happens more often than many owners might think, and it’s not because interested parties are looking to keep their costs down, the report said. Often, owners are a primary driver of any small business’s success, and as such, the ability of companies to stay afloat after they retire or take a step back isn’t always as significant as they might think.
Owners who want to get a little more value out of their company so that they can better invest in future growth, or their own retirements, might want to consider finding more affordable small business insurance coverage. For example, if they can cut costs for errors and omissions insurance, then they might be able to save as much as a few thousand dollars per year.