RETIREMENT AND THE BUSINESS PROFESSIONAL

Many entrepreneurs who start or purchase a business do so for a number of reasons, both emotional and financial.  Social status, the freedom to be your own boss and the potential for a high income are a few of the reasons commonly cited.

For some, business ownership is also seen as a primary way to pay for retirement.  If everything goes as planned, the business owner works hard and, over time, the business grows and becomes more valuable.  When the owner reaches a certain age the business is sold, with the proceeds from the sale funding the retirement years.

THE REALITIES OF BUSINESS OWNERSHIP

Using the business as the sole means of achieving financial independence amounts to placing a bet that the owner will be able to sell at the right time, the right price and under the right terms.  There are several reasons why this may not happen:

Business failure:  Despite good intentions and hard work, businesses do fail. 
Timing of the sale:  Selling a business is a complex, often time-consuming procedure.  The actual process of finding a buyer, negotiating the deal, arranging financing and finally closing the sale may extend over months or even years.

Proceeds:  Depending on market conditions, the amount realized may not be enough to pay for retirement.  Income taxes will inevitably consume some of the proceeds.  The owner may have to accept installment payments, rather than a lump sum.

"I am the business:"  The value of a business may depend largely on the skills and/customer relationships of a particular owner.

DIVERSIFICATION TO REDUCE RISK

A business owner who seeks to reduce risk will view his or her business as one asset among many.  In addition to the business, a diversified portfolio could include the following.

Qualified retirement plans:  Business income is used to fund employer-sponsored qualified plans with a current deduction for contributions and tax-deferred growth.

Nonqualified plans:  Nonqualified deferred compensation plans are often used to reward selected employees and serve to supplement qualified retirement plans.

General investment portfolio:  A business owner can develop a general investment portfolio, outside of the framework of the business.