Retirement Strategies for Main Street Businesses
Countries worldwide are seeing demographic shifts poised to have a significant impact on economic growth. The U.S. Census Bureau reports older populations in the United States are growing rapidly and now make up nearly 17% of the population. As the baby boomer generation (those born between 1946-1964) ages, the economy is facing a number of challenges related to an aging population. How baby boomers and an aging population save for retirement varies and will have an influence on businesses big and small. Main Street businesses need to consider a variety of factors when it comes to retirement planning, as it can impact both their day-to-day operations and long-term succession planning.
Retirement Planning for Business Owners
BizBuySell’s quarterly Insight Report surveys business owners on a wide range of issues facing Main Street businesses. When asked how many full-time employees businesses currently employ, over 75% of business owners responded that their business employs five or fewer employees. Given that 28.81% of companies are run by sole proprietors and 47.61% have less than five employees, retirement and succession planning for small businesses requires careful preparation and strategic decision-making.
Business owner’s retirement plans and the future of their business are intricately connected. In addition to saving for retirement, business owners need to plan for the future of the business. Creating an exit strategy and succession plan that includes selling or transferring the business is important to ensure a successful retirement transition. For owners looking to keep the business in the family, or sell the business to employees, it’s never too early to start exit planning. And for those looking to sell their business on the open market, incorporating a comprehensive retirement plan into the overall exit strategy is critical to ensure the financial well-being of both the business owner and the company’s future.
Retirement Saving Strategies for Small Business Owners
Saving for retirement varies depending on a number of circumstances, including employment. According to USA Facts, how people save for retirement differs depending on employment status. Although there are many retirement savings options available for small business owners, self-employed individuals or those in partnership entities have less saved in retirement accounts than those who work for a company. Alternatively, those same entrepreneurs have more money saved in bank accounts, financial assets, and an overall higher net worth. With an average net worth of $379,743 for self-employed/partnership vs. $90,200 for employees who work for someone else, business owners of these small businesses have a staggering 75% more in their financial portfolio. For many entrepreneurs, when it comes time to retire, the ability to sell a business to enjoy a comfortable retirement provides financial security.
Business acquisitions in the second quarter of 2023 climbed 8% over the first quarter, showing steady growth. Baby boomers make up 32.34% of respondents to the Insight Report. With retirement on the horizon for many opportunities to purchase a well-established business, retiring baby boomers present a wealth of opportunities for young entrepreneurs. For entrepreneurs looking to enter the small business market and tap into the experience of the former owners, purchasing an existing business can be a wise decision.