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Will You Be Able to Retire From Your Small Business?

Posted by Paul D. Woodard | Jun 26, 2018

Do you have the financial security to be able to one day retire from your small business? Many small business owners are so focused on growing their business that they do not take the time to focus on what will happen when they are finally ready to retire. However, there are options available for small business owners to help prepare for their eventual retirement.

Only 31% of small business owners are confident they will be able to retire by 65.

According to a recent survey by Paychex, 21% of small business owners were “not at all confident” that they will be financially prepared to retire before the age of 65. Only 30 percent of those surveyed even felt “somewhat confident” that they would be financially stable enough to retire between the ages of 61 and 65.

There are a number of reasons why small business owners may not feel confident about retirement. Like most American workers, small business owners may not be putting enough money away to build their retirement savings. This can be because they do not have a retirement plan, money is tight, or they simply keep putting it off.

For these small business owners, a consultation and assistance with setting up a retirement plan may be all they need to get on track to retire. This includes offering options for qualified retirement plans that provide tax benefits to the company and participants, such as a SEP IRA, Simple IRA, or 401(k).

Have you considered an ESOP for your San Diego small business?

Another issue for small business owners is how to transition from business owner to retirement. Small business owners have built up so much equity in the company that there may not be an easy way to hand the company over to someone else. The company may fill a niche market and not have a ready buyer to pay fair market value.

With so much invested in the company, the community, and the employees, other owners are hesitant to hand the business over to a third-party buyer who has no interest in maintaining the community, corporate culture, or the good name the founders worked so hard to build.

In these situations, an Employee Stock Ownership Plan (ESOP) could be an ideal option many small business owners haven't considered. An ESOP is a qualified retirement plan that invests primarily in company securities. When setting up, the owner sells shares of the company to the ESOP trust, giving participating employees an interest in the company. Contributions to the ESOP are generally tax deductible and when employees retire, the ESOP buys out their shares.

Some of the primary benefits of an ESOP are that it allows for a gradual transition of control from the owner over a period of time, to ensure the company is left in good hands. An ESOP also provides a ready-made buyer of the company at market value without the unpredictability of a 3rd-party buyer. Additionally, employee-owned businesses report increased productivity and employee satisfaction, which is a good sign for the future of a company that the founders worked so hard to build.

If you are a small business owner with questions about finding the best retirement benefits plan for your company, the law firm of Butterfield Schechter LLP is here to help. We are San Diego County's largest law firm with a focus on employee benefits law. Contact our office today with any questions on how we can help you and your business prepare for the future.

About the Author

Paul D. Woodard

Paul Woodard practices in the areas of Employee Benefits, Employee Stock Ownership Plans, Pension and Profit Sharing Plans, ERISA, ERISA Litigation, Business Law, Qualified Domestic Relations Orders (QDROs), and Estate Planning.


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