Keeping a retirement plan in sight

By Carol Yip
Saturday July 25, 2009

BUSINESS owners have more options for retirement planning because they are self-employed, have the freedom to do what they like and most importantly, they can choose to retire any time.

The potential of making a lot of money is another good reason to venture into business instead of being employed. These are great advantages of a business but business failure could lead to poor personal wealth and emotional regrets.

Business venture has many facets of risks that are beyond one’s control and can affect retirement plan.

The 2008/2009 financial crisis is a good example. Imagine a business owner who is in his or her 50s or 60s planning to retire during this crisis. He or she may not be able to retire but to work even harder to recover from financial damages. At the same time, there is no guarantee that he or she will be financially successful in the next five to 10 years.

Daily challenges in managing a business can make a person feel overwhelmed and lose sight of personal retirement planning. At the same time, poor management of business will affect personal retirement funds.

So, could it be the subconscious thought of this nature that makes the business owner focus more on business instead of retirement planning? We often hear business success stories because owners have passion in the business or make personal passion into a business.

One must be clear that passion is good for business but business owners must be able to find the mechanics to protect personal wealth from business failure as well. This is because passion is a kind of emotion. It can be dangerous when the person is blinded by passion and is stubborn enough to carry on the business even when it is loss making and draining personal wealth.

If the business is making money (regardless of passion or not), he or she must know how to benefit from it for personal retirement wealth. But will there be emotional greed because of opportunities, temptations and invitations to make a lot of money, even if it means high personal liability risk?

Though I understand that it is difficult for a business owner to stay focused and not be swayed by such inducements, it is wise to seek opinions and advice from friends, business associates and experts, do extensive research, work through the financial figures and discuss the pros and cons with family members, staff and management including the shareholders, board of directors and advisors.

Business owners should communicate to spouse and children if it affects them financially or emotionally. Besides business acumen, entrepreneurial skills, experience and knowledge to make business profitable, the business owner must also have a team of capable staff, experts, family members, spouse or children to take over the business when the owner decides to retire (as part of business succession planning) unless he or she decides to sell the business.

Business and retirement success require business owners to “macro-manage” business opportunities and treats, complexity of business dealings and agreements with clients and business partners, financial obligations to creditors and third party, company financial structure including share ownership and loan exposure, non-financial risk exposure of the operation, staff management and business succession.

At the same time, “micro-manage” daily clients’ and suppliers’ relationship, business operation, sales and marketing and collection of payment for staff payroll, supplier’s bills, operating expenses and loan obligations.

In the midst of all these, he or she needs to ensure that monthly salary and business profit are sufficient to pay for personal expenses, financial obligations, save and invest for future retirement. With such mind-boggling challenges, it is only wise for the business owner to have a team of experts to help implement a personal retirement plan while managing the business.

They could be your personal life and financial coach, advisor or planner, accountant, tax advisor, lawyer and investment experts (similar to employees, professionals, accountant, lawyer, tax expert, business advisors, mentors and coaches for a business).

They are your “sounding board” and trusted people to talk about business grievances, stress, worries and issues, personal problems, health problems or unexpected mishaps.

They could help find ideas and solutions to implement wealth protection mechanism and risk management against potential risks, assets claims, business dispute or financial claim from a third party.

Make a point to get in touch or meet them regularly to get information and insight to help make the right decisions for personal investment and tax planning.

I am aware that it can be difficult to let go of your attachment feeling from the business and think critically what you really want as you age later in life. Believe me, it can be even more painful if you experience personal financial losses at old age because of business failure.

Keep in mind that a wrong business decision today may have an adverse effect on your future retirement plan. Start treating your retirement plan as an important business unit that needs your personal attention just like your other business units or ventures.

Carol Yip is a personal financial coach who is founder and CEO of Abacus for Money.