Estate Planning, Retirement Planning

Your Personal Wealth Generator: Leveraging Your Small Business to Secure Your Financial Future


Almost everybody knows—or, at least, they should—that small businesses are the backbone of the American economy. According to the Small Business Administration, small businesses account for two-thirds of the new jobs created and around 44 percent of overall economic activity. In other words, from a macroeconomic perspective, your small business is a very big deal.

But what about the small business owners—the people who are creating the jobs and contributing to the economy? They are also the ones who assume all the risk: whose decisions and abilities determine the success or failure of their enterprises. Clearly, there is no one who is more directly responsible for the long-term impact of a small business than the entrepreneur who launched it. The fact is that statistically, less than half of small businesses survive for five years, and only about 25 percent make it to the 15-year mark or longer. Given the vital importance of those few who are successful over the long haul, what can these individuals do to ensure that their personal financial well-being is receiving an adequate amount of attention?

There are some important steps that small business owners can take to leverage the success of their businesses into securing a more prosperous personal future for themselves and their loved ones. In fact, ownership of a small business confers a number of advantages for building and maintaining personal wealth that people who “work for the other guy” don’t have access to.

Generating multiple income streams.

As the owner of a small business, you may be able to utilize a portion of excess revenues to create additional income streams that aren’t directly related to your core business. This is a technique that many medical and legal professionals have used successfully for many years, particularly in real estate. At a certain point, some practitioners have found it advantageous to purchase or build their own place of business. In addition to the capital appreciation that can accrue over time, they may also enjoy rental income by leasing space to other professionals or business owners. Further, the ongoing income stream from rentals can potentially continue after the retirement of the building owner. Of course, as with any major purchasing decision, you should consult with your tax expert and also, if possible, a real estate professional knowledgeable about the commercial aspects of buying and leasing professional buildings.

Benefitting from a business-sponsored retirement plan.

We’ve heard many variations on this statement from small business owners: “My business is my retirement plan.” And while there’s no question that focusing your energy on running and growing the business is your number-one key to success, it’s also true that taking advantage of the tax and other benefits of a company-sponsored retirement plan—like a SEP, SIMPLE IRA, defined benefit plan, or, in some cases, a solo 401(k)—can give business owners a major boost toward a more secure and stress-free retirement. Think of it as smart diversification. After all, if 100% of your personal wealth is tied up directly in your business, you may have what investment managers term a “concentrated position,” one that could have serious consequences in the event of an unforeseen downturn.

By systematically setting aside a portion of your earnings in a company-sponsored plan, not only are you able to obtain a reduction in the amount of income on which the business is taxed; you are also positioning a portion of your assets for tax-free growth within the account, which can add significantly to the ability of these assets to grow and compound. Further, company-sponsored plans like those listed above provide for larger contributions than personal IRA accounts, giving you the ability to shelter larger amounts of income from taxation. Finally, by choosing investments for your account that are well diversified among asset types, you may be able to create a solid foundation for retirement income that is more independent of your business and less susceptible to market or economic cycles.

And by the way: offering a well-designed company-sponsored plan is a proven way to attract and retain the type of talented employees your business needs to continue growing into the future.

Planning for a successful transition.

Speaking of retirement, one of the most important—and too-often overlooked—components of a successful small business is having a succession plan in place, well before your planned departure. Maybe you intend to pass the business on to an heir or a key employee, or maybe your plan is to sell it and invest the proceeds; either way, advance planning is the best way to avoid unexpected tax issues or unpleasant legal problems as the time nears for you to step down. A solid, well-designed succession plan can also help to protect the personal wealth you’ve built up over the years. Your exit strategy should include options for difficult and typically unplanned situations like health challenges, disability, and other circumstances that might otherwise force you to liquidate the business under duress.

Of course, all the above elements—plus many more that might be discussed—are greatly simplified when you have the right kind of advice and guidance. At Aspen Wealth Management, our fiduciary duty to our clients requires us to ask the right questions: not only about investments and retirement accounts, but also about business planning, your overall wealth and income picture, and most importantly, your goals, dreams, and key priorities. Only when we know exactly where you intend to go with your business can we offer the kind of help that always places your best benefit in front of everything else. To learn more about what we mean when we say, “Planning Is Our Purpose,” visit our website or subscribe to our free Alexa skill, “Purposeful Planning with Aspen Wealth Management.”


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

This information has been derived from sources believed to be accurate and is intended merely for educational purposes, not as advice.

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