Why Personal Financial Planning Matters for Business Owners Preparing for Retirement

Business owners often make a consequential mistake — investing their heart, soul, and profits into growing their business while neglecting to plan adequately for retirement.

It’s a common issue, particularly among those who start or purchase a business during the startup phase. In the early years, profits are slim and the owners reinvest them in the company to ensure it survives. But as profits grow, many owners face a choice: Do I focus solely on growing the business, or do I start investing in myself?

Because of the emotional attachment many entrepreneurs have to their business — it’s their baby — they often prioritize its success over their personal wealth planning. Unfortunately, this can lead to some difficult circumstances.

Recently, our team worked with a couple who had purchased a failing company 25 years ago, turned it around and were now contemplating retirement: Without their salaries and company benefits, and holding only a small 401(k) account, they didn’t have the liquidity to retire. Instead, they faced a stark choice: sell their business to a third party — something they had never planned to do — or delay retirement, work for another decade and continue building their savings.

The news was difficult to hear. In hindsight, they likely would have made personal financial planning a higher priority.

How to Better Prepare for Retirement

Business owners can better prepare for retirement by following these best practices:

Make personal financial planning a priority.

Strike a balance. In addition to having a business plan for growing your enterprise, take the time early in the life of your business to develop a personal financial plan. Assemble a team to help, including wealth, tax, and legal advisors.

Financial planning involves identifying your personal goals and current and future needs, then developing a strategy to meet those goals while simultaneously supporting success in your business. You will want to factor in a range of issues, including the value of your business today, its potential future value, when you would like to retire and what you hope to do in retirement.

Institute a robust, diversified investment program.

Start by opening a tax-advantaged account such as a SEP IRA, SIMPLE IRA, or self-employed (solo) 401(k). But don’t stop there. To diversify, you may also want to establish a taxable brokerage account, invest in real estate, or both. When it is time to retire, having access to diverse categories of assets will give you greater flexibility both in terms of liquidity and tax planning.

Keep your business plan and your personal financial plan in alignment.

For example: Some owners hope to pass their business on to family members. But that aspect of their business plan must be supported by their personal financial plan. You can’t gift the business to your children, for instance, if you haven’t planned to create savings outside the value of your business to support your financial needs in retirement.

Plan early and revisit your plan often.

Work with your team of planning professionals to regularly update your personal financial plan. Change is constant. Your business, your life and your financial needs will evolve over time. Make sure those changes are reflected in your plan.

The Fruits of Improved Planning

No business owner wants to reach retirement only to find they must work 10 more years or abandon their business-exit goals. By prioritizing personal financial planning throughout your years of business ownership, you will give yourself more choices and greater flexibility as you approach retirement.

Ready to begin developing your personal financial plan? Ask your banker to connect you with a Hancock Whitney wealth advisor in your area.

This information is general in nature and is provided for educational purposes only. Information provided and statements made should not be relied on or interpreted as accounting, financial planning, investment, legal, or tax advice. Hancock Whitney Bank encourages you to consult a professional for advice applicable to your specific situation.

Hancock Whitney Bank offers investment products, which may include asset management accounts, as part of its Wealth Management Services. Hancock Whitney Bank is a wholly owned subsidiary of Hancock Whitney Corporation.

Investment and Insurance Products:

NO BANK GUARANTEE │ NOT A DEPOSIT │ MAY LOSE VALUE │ NOT FDIC INSURED │ NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY