New research reveals which types of retirement plans are most popular for small business owners.
Retirement is top-of-mind for professionals everywhere, but that doesn’t always mean they have a savings plan in place. To determine how small business owners are planning for retirement, Manta surveyed 1,960 small business owners and found that more than one-third do not have a retirement savings plan, while another 36% plan on seeking out other job opportunities upon retirement from their business.
The research also explores how small business owners’ retirement savings habits differ from consumers, their reasons for not having a savings plan, and which plans are the most popular among small business owners.
The results were indicative of what has been taking place in America for the past 20 years. People are finding it more and more difficult to stash money away for retirement. In March 2016, GoBankingRates published research conducted with 1,504 adults over the age of 55 (4.3% margin of error). About 30% of the respondents age 55 and over claimed to have no retirement savings. An additional 26% reported less than $50,000 saved for retirement. When considering typical benchmarks needed for a successful retirement, 54% of the older Americans in this survey lacked sufficient retirement funds.
Business owners have the advantage over non-business owners when it comes to funding their retirement. Business owners are creating equity that can be pulled out of the business at the time of sale. Most business owners are frustrated however with the rate the equity is growing. There are several things an owner can do to increase the profits as well as the value of their business.
The first step to take, so potential buyers will understand the value of your business, is to show a track record of increasing profits. If you can show them your profits will continue to trend upward, you can get a much higher selling price. Finding opportunities to increase sales, reduce costs, and create efficiencies leading up to a sale will demonstrate an extra profit boost and impress buyers. Obtaining a short-term business loan can help expand your operations, boost profits, and increase the sales price for your business.
Ultimately, all value drivers contribute to profit potential aka increasing cash flow, and buyers look for companies whose cash flow is increasing year over year. For example, compare two businesses, each experiencing $6 million of cash flow over the last three years. One company’s cash flow was $1 million three years ago, $2 million two years ago and $3 million last year. The second company had $2 million of cash flow in each of the same three years. Which company is worth more to buyers? The company with growing cash flow. Its track record of steadily increasing revenue can be convincingly projected into future, post-sale growth.
Find ways you can increase sales and revenue, especially recurring revenue, that will generate income for the new owner - right from the start. This may include shoring up any pending customer or vendor contracts, giving the new business owner peace of mind that they will have consistent revenue flow as they get accustomed to running their new business.
Business buyers typically look for a customer base in which no single client accounts for more than 8-10% of total sales. When you develop a diversified customer base, you insulate your company from the loss of a major customer. For example, if your three top customers generate 25-40% of your sales, a buyer will be concerned that one or more of them would leave upon learning that you sold your company. To a lesser extent this may also be a concern to inside buyers if the biggest customers are loyal to you, rather than to the company or other employees. Customer concentration then, is a risk factor to be avoided regardless of the exit path you choose.
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