Independent business owners have chosen a special way of life away from the corporate world and “big brother” taking care of your needs.
You are your own boss! The only people you have to keep happy are your customers. You work hard and long hours to meet the challenges and responsibilities that you face.
However, if studies about the future of retirement in Canada are correct, there is one challenge that a majority of business owners need to address more concretely. Business owners in Canada are not preparing for a financially independent retirement. Simply put, they are not ready to retire.
For business owners who are accustomed to planning for their businesses, it is time to start planning more actively for the transition to retirement. Whatever that word means to you there are four basic steps to begin the process of becoming a “financially independent retiree”.
Step one: Analyze your cash flow
Cash flow is a magical concept that can uncover a multitude of opportunities.
It goes well beyond just revenues minus expenses equals profit, which is the way most accounting programs have taught us to view our business activity. When analyzed thoroughly, cash flow can reveal both weaknesses and the potential for surplus funds to use in more productive ways.
Also critical, is to link both business cash flow with personal cash flow, because they are very closely tied together.
Step two: Analyze your net worth statement
The net worth statement is a great way to track your progress on an annual basis. Hopefully, with assets growing and liabilities falling, your net worth will show a steady positive incline.
For business owners, the largest asset will probably be the value of the business itself. However, the family net worth statement should incorporate both business and personal assets.
Ideally, by the time we make the decision to retire, there should be a multi-layered pyramid of many different types of assets.
For example, rental revenue from the business owned building, payments from the purchaser of the business, RRSPs, tax-free savings accounts, etc.
The good news is that business owners have many different options to help build their net worth statement that are not available to salaried employees.
Step three: Analyze your tax returns
Tax, in its many different forms, is the single largest expense that will eat away at your hard earned business revenue and personal income.
Everyone is familiar with the annual tax return with its maze of tax credits and tax deductions.
For business owners there is another level of tax planning that can provide significant opportunities. When structured properly and allowed to mature over your working lifetime, there are many tax related strategies that can save thousands of dollars in tax.
It really pays to explore which of these strategies can work for your business.
Step four: Analyze yourself
One thing we all know is that independent business owners are very busy people. There is a lot going on in a normal day of dealing with all the demands and responsibilities of running your business.
There is very little time to be thinking about planning for a distant future called retirement. We also know that the longer we postpone these steps, the harder it becomes to finance the retirement years – whatever that may mean for you and your family. All the planning and ideas are not worth much, unless we take steps to implement the strategies with a solid action plan.
Whether your business is struggling or extremely successful, it is incumbent upon you to explore as many ideas, strategies and opportunities that this four step planning process will uncover. It never hurts to find the gem of an idea that could help make your journey to financially independent retirement more enjoyable and secure.
Find out what questions you might not be asking yourself. It is important to step aside from the pressures of daily management to plan for your future life after business.
Just remember a strategy requires action in order to be successful!
