In John Holloway's early years as an entrepreneur, saving for his own future wasn't a priority.
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"I invested a lot of money into one of my first businesses and came out break even at best. I am kicking myself for not setting some of that money aside for retirement," says Holloway, co-owner of NoExam.com, a life insurance brokerage based in Roswell, Georgia.
These days, when his company's cash flow and profits are strong enough, he takes money out of the business and invests in a retirement account.
"I am trying to diversify — having all of my eggs in one basket is stressful," Holloway says.
Saving for retirement hasn't been a priority for many small business owners over the years. They've hoped to build their businesses, sell at a huge profit and have a comfortable retirement. While they've taken profits out for homes and college tuition, it was more important to reinvest earnings into the company rather than save for retirement. But attitudes about saving may be evolving after the financial devastation of the Great Recession, when tens of thousands of businesses failed.
In a survey by insurer Nationwide released in October, 53 percent of younger business owners — those born in the 1980s and '90s — said having a workplace savings plan was important for their retirement. Fewer baby boomers, 39 percent, felt it was important. Older surveys show how boomers favored their companies over saving — the Small Business Administration said in 2006 that only about a third of owners had Individual Retirement Accounts and 18 percent had a 401(k).
When Ron Lieback started his digital marketing business, he began setting aside 10 percent of his own salary. Profits from the company, ContentMender, are reinvested into new technology, but Lieback wants to be personally prepared for the what-ifs.
"Something could crash and our business could fail. You always have to have that in the back of your head, so you need that nest egg," says Lieback, whose company is based in Mountain Top, Pennsylvania. To help his company be more profitable, and therefore help himself save, Lieback uses freelancers for some of ContentMender's work.
Owners who expect companies to fund their retirement are optimistic but may be overlooking the fact that they and the business are vulnerable to potential calamities, says David O'Brien, a financial adviser with Evolution Advisors in Midlothian, Virginia. For example, an owner who's the company's key employee can be sidelined by a serious illness, hurting the value of the business. Or if patents are infringed and once-exclusive products are now sold by competitors, a company's value can plunge.
Moreover, O'Brien says, when it's time to sell, buyers might not be willing to pay what the owner hopes for.
"You need to shore up your reserves in case you don't get the sales price of your business that you want," he says.
Many owners couldn't get their asking prices during the Great Recession and its aftermath. Sales of companies plunged and didn't recover until 2013; they've soared since as owners finally got the deals they wanted.
However, many startups might not exist if owners hadn't plowed every possible cent into the business.
"We invested everything we made back into the business to get it past the tipping point of financial stability," says David Gafford, who owns Fusion Creative, a digital marketing firm and a credit card processor, both in Indianapolis. "Then we made the turn from putting everything back into the business to focusing on our personal and family goals as well."
But, Gafford warns, saving will affect the business: "You're really dramatically slowing the rate at which you're going to grow."
Financial adviser Nathan Fisher finds owners don't think about retirement savings until they're prodded by employees; putting money aside suddenly becomes a priority.
"Their nest egg is their business," says Fisher, senior executive vice president of Fisher Investments 401(k) Solutions. "Then they get employees who say, 'my old company had a 401(k), why don't we have one?'"
But Shamila Nduriri, who studied finance in college, saved aggressively when she worked for a corporation and continues to put money aside now that she owns Dalasini, a jewelry company based in Las Vegas. While she is saving for retirement, real estate investing and contingencies, she also wants the tax savings from contributing to a retirement account.
"It's foolish to leave money on the table if there's a tax benefit to it," Nduriri says. She can deduct up to $55,000 a year for money she puts into what's called a Simplified Employee Pension, or SEP, account.
When Nduriri decided what kind of business to start, she chose upscale jewelry because it has higher profit margins, and that makes it easier for her to save.
"When your margins are thin, you have to invest every penny," she says.
Some owners, because of the nature of their business, believe it's wiser to keep investing in the company. Metropolis Collectibles deals in rare comic books and comic book art, some of which have sold for hundreds of thousands of dollars. Co-owner Stephen Fishler believes comic books are a better bet than stocks, so he focuses on the items in his inventory.
"Investing in them, from my perspective, can do significantly better than putting those same funds into more traditional investment vehicles," he says.
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