Self Preservation

If you are self employed and do not have a financial plan for the future, not only is your business in trouble but your personal prospects and financial success are not very good either. Two of the most elusive items for the business owner are; sufficient cash to accomplish all the planned business objectives, and a reasonable assurance that they will have a sufficient funds available at retirement. Most business owners are so absorbed in the day to day operation of their business that they fail to make provisions for their future. Comfort in your old age is going to be a function of how much effort you spend today in planning for the financial future.

Quite often, the anticipated source of retirement funds for the business owner comes from the sale of business. This assumes that the business is salable, profitable, and that it can be liquidated for a reasonable price. It further assumes, that at the time of sale the economy is good and you have sufficient cash let over after paying capital gains taxes on the profit. After studying the potential pitfalls of this situation a reasonably prudent person would conclude that retirement planning is absolutely necessary.

Because of the scarcity of time and large sums of money the following attributes are highly desirable for a financial plan / retirement program.

  • Ease of operation - program should be as automatic a possible. An electronic bank transfer into the retirement account would be high priority.

  • Program should permit periodic small amounts in the beginning and allow contributions to be gradually increased in the future.

  • Program should have multiple types of investment alternatives available (stocks bonds and real estate).

  • Procedurally, program should have the mechanics in place to allow gradual systematic disbursement at retirement.

There are multiple tax advantaged programs available to the business owner; traditional IRA, ROTH IRA, SEP (Simplified Employer Plan), SIMPLE IRA, and individual 401k to name a few. Each plan has different requirements, advantages, and disadvantages. Diversity and complexity of these programs are too numerous for the scope of this article.

Most of these accounts can be opened at a bank, stock brokerage company, or mutual fund. Cost of implementing and maintaining a limited contribution program is exceedingly important. There are two low cost methods available to implement the plan. First, is a mutual fund which has no sales commission and very low annual expenses. One such mutual fund company is Vanguard, they have a no commission, low expense index fund that helps achieve account diversification. A second method is a relatively new program called (Sharebuilders), it allows the purchase of partial shares of individual stocks on a monthly basis for $4 or less commission per company. Both programs have the ability to accept electronic transfers of small amounts from your checking or saving accounts on a monthly basis. They also have automatic no commission dividend reinvestment. These programs will help build a retirement fund gradually through dollar cost averaging and still obtain some degree of diversification.