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When is the ideal time for a small business to plan for retirement?

Small business owners and decision makers are no strangers to placing bets on their own success, but too many count on their business proceeds alone to get them through retirement.

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Retirement: the often overlooked part of business

When you’re running your own business, it’s easy to get caught up in the sense of accomplishment that you feel and the day-to-day operations necessary to keep things running smoothly. Most owners don’t even think about how when they will retire or the steps they need to take to do so because they figure they will just sell their business when they’re ready and the proceeds will sustain them.

However, as a business owner, you are even more susceptible to not having enough money to retire with because your entire well-being lays on you and you alone. There is no company-provided 401k to prompt you to put money away each month. If you want to be able to comfortably retire and not work for the rest of your life, you need to start planning now rather than later.

A common mistake (and hot alternatives)

Many small business owners think the best course of action is to put all of their disposable income back into their business in order to make improvements that could boost revenue. While it is smart to continuously invest in your business, it isn’t wise to forgo allocating money towards your future.

Instead, if you are the owner of an early start-up, put away a small amount each month into a Roth IRA. Once your business begins to grow, you can move funds in a traditional IRA, which will provide tax benefits for your business. And after business really begins to take off, meet with an adviser and discuss setting up a SEP IRA (Simplified Employee Pension), which will allow you to contribute up to 25 percent of your net self-employed income.

The answer: start now

As a small business owner, the answer to the question of when to begin preparing for retirement is now. Don’t procrastinate or tell yourself that you need to reach a certain number of sales before you can start putting money away. Investing in your future is a venture that can’t wait and the outlook will only dim the more you put it off.

Your business may be your pride and joy, but don’t put all of your eggs in one basket and assume it will take care of everything 30-40 years from now. Market conditions could change and affect your revenue, so it’s better to put money away today, whether a small or large amount, and be certain it will be there in the future, rather than placing all bets on a future sale.

Destiny Bennett is a journalist who has earned double communications' degrees in Journalism and Public Relations, as well as a certification in Business from The University of Texas at Austin. She has written stories for AustinWoman Magazine as well as various University of Texas publications and enjoys the art of telling a story. Her interests include finance, technology, social media...and watching HGTV religiously.

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2 Comments

2 Comments

  1. Jeff Brown

    October 15, 2012 at 1:08 pm

    Hey Destiny, solid info. It’s surprising sometimes how many successful small biz owners don’t really know what’s on their menu as it relates to retirement. Here’s an option many find attractive, and creates exactly what you suggest.
     
    A Solo 401K is available to businesses where only the owner and maybe their spouse are employees. They can each contribute significantly more than double what traditional or Roth IRAs permit. Also, they can be used on the Roth ‘side’ or traditional side. That is, contributions can be either/or/and before and after tax. Once they turn 50, they can increase their annual Roth side contributions to as much as $22,500 — each. 
     
    I frequently have my own clients look long and hard at the possibility of executing this approach in their own businesses. I advise them to make use of the Roth approach exclusively. They find that the incredibly generous contribution limits and the ‘tax free’ nature of their ultimate retirement income are the factors that are most attractive. The fact that it’s completely ‘self-directed’ is especially appreciated, as it allows them to rid themselves of the straightjacket most traditional plans require when it comes to choosing investment vehicles.
     
    Thanks again for the super info, Destiny.

  2. Pingback: How much money must you set aside daily to retire at 65 as a millionaire? - The American Genius

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Business Finance

Kodak’s cyrptocurrency could save themselves and photographers

(FINANCE NEWS) Kodak’s foray into cyrptocurrency is more than a financial play, it could be their very salvation in some peoples’ eyes.

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Not one to be left behind, Kodak recently announced their decision to hop on the cryptocurrency bandwagon with their own currency for photographers: KodakCoin. It’s not as hokey as it sounds, we promise.

It’s easy to make fun of Kodak, the Blockbuster of film companies, for buying into the cryptocurrency world, but their motive isn’t as bizarre as it first appears.

KodakCoin is actually a virtual token that will be used on Kodak’s new photographer platform, KodakOne. The idea behind the platform is that photographers can register their work and monetize any cases of copyright infringement, all through the KodakCoin system.

KodakCoin itself is based in the same foundation as Ethereum, and the KodakOne platform uses the same blockchain technology that we’ve come to expect when dealing with cryptocurrency.

As far as KodakOne goes, most of the authentication process is autonomous. Once photographers have uploaded their work and records of fair use, KodakOne searches for instances of unauthorized uploads and then requests payment from the uploader. The payment is processed in KodakCoin, and photographers are left with 60 percent of the resulting currency while Kodak and Wenn Digital share the other 40 percent.

Perhaps the most interesting aspect of this whole affair is the effect that merely announcing KodakCoin had on Kodak’s stock. After revealing KodakOne and the accompanying KodakCoin at CES on Tuesday, Kodak’s stock hit a high point that more than doubled their previous stock value. This goes to show how infatuated our culture is with cryptocurrency at this point, but it also raises some questions about Kodak’s true motives: is KodakCoin a legitimate enterprise, or a Hail Mary pass?

Kodak’s official stance on the matter is that their move into cryptocurrency represents their initial business goal: to provide photographers with a stable, supportive platform that places their needs and concerns above those of similar venues. On the other hand, sources virtually everywhere have been quick to skewer Kodak for what appears to be an obvious bid for relevancy in an era unsuited for the dinosaur of a company.

There’s no telling where KodakCoin will take the aging company, so for now, these speculations will have to do. KodakCoin goes public on January 31st of this year.

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Business Finance

Super-investor Warren Buffett calls cryptocurrencies a mirage

Famed investor Warren Buffett has stated he believes cryptocurrencies like Bitcoin will end badly because they are a “mirage.”

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For many, cryptocurrencies have become an investment well worth the risk, but for many others they are something to vehemently rail against. Try posting something on Facebook about crypto and see if you don’t get lovers and haters instantly weighing in.

One of the most prominent members of the “rail against” group is CEO of Berkshire Hathaway, Warren Buffett.

Buffett, while widely respected for his shrewd investment foresight, is not a fan of cryptocurrency and warns potential investors he thinks, “almost with certainty they [cryptocurrency] will come to a bad ending.”

Buffett went on to state to CNBC, that he didn’t really understand how Bitcoin operated but he would never “have a position in them.”

Will Buffett’s word have an impact on cryptocurrencies like Bitcoin? Surprisingly, Buffett’s words have had little effect (so far) on Bitcoin’s value.

Remember a few months ago when Buffett bought Synchrony? The lesser-known stock seemed to take off overnight after Buffett/Berkshire Hathaway’s investment, leading us to believe than many powerful investors take heed of Buffett’s business acumen, which could potentially impact how other investors feel about cryptocurrencies overall.

Buffett told the Washington Post, “there are basically two kinds of assets: one you look to the stream of income it will produce and the other you hope like hell that someone will pay you more for it.” The second type would most definitely include Bitcoin.

Buffett contends that since cryptocurrencies are backed by computer power instead of a national bank, they are unreliable and fluctuate too much to be trusted.

The takeaway?

There is no doubt that Buffett is the go-to man for investments, but how can you repudiate Bitcoin and other cryptocurrencies worth if you admittedly do not understand how they work? If you don’t understand how they work, how could you possibly appreciate their value?

I’m not sure if this was meant to be a sarcastic statement on Buffett’s part, or if he genuinely doesn’t understand how they work, but still dislikes them. Back in 2014, Buffett told investors that it was nothing more than a “mirage” and that investors should “stay away from it.”

There’s no doubt, the man is a genius in the business sphere, but is he right about cryptocurrencies?

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Business Finance

Spotify files to go public directly, won’t be the last to buck tradition

(FINANCE) Spotify directly filed to join the stock market late December, forgoing the traditional IPO process. Will other tech companies follow suit?

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It’s official: Spotify, the wildly popular music streaming platform, took a leap and filed with the SEC to become a public company late last year. Many in the tech industry expected this move was in the works, and the news was confirmed by Axios this week.

However, the most noteworthy part of this announcement is how Spotify has chosen to join its competition in the public space.

Instead of entering the stock market through a traditional IPO process, Spotify has reportedly opted for a “direct listing,” which means it won’t need to travel to seek out investors and will bypass bank underwriting fees, among other things. As a direct listing, Spotify could also promote its new business model to the media ahead of its projected Q1 debut, something SEC rules strictly prohibit for IPOs.

The direct listing process could also encourage high stock value sales day-of debut, avoiding a “leave money on the table” situation, which can happen when high net worth individuals and institutional investors get first dibs on IPOs but banks recommend the company only trades up to about 20 percent or so. Under its chosen process, Spotify stock values could debut much higher, driven by demand and what investors are willing – and able – to pay.

By taking this non-traditional route Spotify will, however, forgo potentially millions of dollars they could have fundraised in an IPO. Those dollars could have helped pay down debt or settled lawsuits, but Spotify’s direct listing move seems to be about more than money. Spotify was last valued at $8.5 billion, so it might not need monetary help anyway.

Overall, a direct listing may reduce the hassle of going public. Spotify is just filing paperwork to make it legal for anybody to trade company shares, basically. Direct listing is casual and less structured.

However, some are concerned that chill approach won’t do enough to help Spotify once it’s actually public. Sure, networking with investors to build equity and relationships may be tedious, but those connections could pay off down the road when it’s time for financial reporting and underwriters can help shareholders trade more easily, along with Wall Street sponsorship aids that help buyers and sellers in similar ways, according to David Golden of Revolutions Ventures.

Spotify’s actions could be risky, too, as their stock may not fit customary Wall Street standards and in turn be avoided by some investors, David Menlow, president of IPOfinancial.com, told Marketplace.

For now, all eyes are on Spotify and its decision. Wall Street, industry leaders, and even the SEC are all interested in how their direct listing will play out. As others in the tech space have expressed frustration with the traditional IPO process before (think Uber), more companies may follow suit if Spotify succeeds as a directly listed public company. That could put pressure on Wall Street and the SEC to change the IPO process, too.

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