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7 Steps to Financial Freedom for a Business Owner

As you prepare for tax day, are you thinking, I have been working as a business owner for a number of years and while I make a good income, I have no idea if I am on track for retirement? How do I take control of my future? The following process can be used to start you on your way.

Step 1: Determine where you are at

Gather all your investment statements, checking account statements, latest tax returns, insurance documents, business documents including profit/loss statements, loan documents, spending history, and current estate documents. From this information, a net worth statement can be generated plus cash flow and income projections.

These documents can be used to look at where you are today and make projections for the future. A Business Owner can use one of the following tools to create these helpful documents: www.mint.com, www.mvelopes.com, Quicken, or Microsoft Money. 


Step 2: Set Goal for Financial Independence

The next step for business owner is to determine how much extra savings is needed to achieve their retirement and financial independence goals. There are a number of calculators available on the web that can help identify the target savings number. Just be careful because the assumptions used in the calculators can have a big impact on the results. Another way to look at determining a target number is to use 4% "safe" withdrawal rate in retirement.  The 4% rule in my opinion is a pretty good indicator of preparedness for financial independence.

Example: A business owner's $3 million dollar investment portfolio can create a $120,000 income stream (before taxes) increasing each year with inflation. At this rate, the portfolio should last 30 years or longer without running out of money. Besides the retirement goal, other goals need to be included and can increase the amount that is required. Examples of other goals include paying for college for children or grand children, extensive traveling, charitable intentions, vacation properties, etc.


Step 3: Determine what your "gap" is

After determining the gap between the expected income in retirement and the projected expenses, a plan to fill in the gaps is necessary. Following are areas to look at and consider.


Step 4: Maximize your savings!

Business owners have a number of vehicles to help build savings!

·        Maximize contributions to your defined contribution plan. Up to $50,000 can be contributed for 2012. If you are over age 50, $55,500 is the maximum allowed contribution.

·        Explore the possible use of a defined benefit plan. This type of plan allows for higher contributions to make up ground for retirement savings if needed. The downside is that it can be very complicated to setup and administer.

·        Contribute to Roth IRA, Spousal IRA, or Non-Deductible IRAs as allowed depending on income.

·        Other possibilities Use Health Savings Accounts (HSA) accounts, 529 college savings accounts, or build a taxable savings account.


Step 5: Review the insurance element

Conduct a thorough review of your insurance program. In my experience, business owners typically have huge gaps in their personal and/or business insurance programs.

·        Meet with insurance agents to have a risk assessment and evaluation of your insurance program.

·        Determine needs for life insurance, disability insurance, long term care insurance, business insurances, property & casualty insurance, health insurance, etc.

·        Shop around to verify that you are receiving good value for the premium dollars you are spending.

·        Implement appropriate and recommended coverage.


Step 6: Do some basic business planning


·        Run your business like a business. First, develop a business plan and marketing plan.

·        Determine measures to benchmark the practice and monitor progress to the plans. Might be profit, patient satisfaction, employee satisfaction, new patients, expenses, etc 

·        Areas to look at:


o   Do you want to focus a niche for your business and then develop it?


o   Do you need help with Marketing?


o   Do you have the systems and procedures in place to manage the practice? Think E-Myth Revisitedby Michael E Gerber.


o   Does customer retention need to be improved?


o   Review insurance to improve value for the premium dollars spent and to protect the practice.


o   Most employers dont realize the costs of maintaining their retirement plans. Costs can have a significant impact on account growth. If you dont know the costs, investigate to determine you have a plan with the features you want and are paying a fair fee(s).


o   Do you have a place where the people you work with enjoy coming to work? A good working team.


o   Are you utilizing outsourcing as a tool to improve profitability?


o   Maximize all deductions available to the business.


o   Consider owning the building your business is in instead of paying rent.


o   Do you have contingency plans in place should you or a key employee becomes disabled or dies?


o   Do you have an exit strategy for your business? Buy/sell agreement or plans to bring in a future buyer of your practice?

·        The bottom line is that you want to maximize the amount you take out of the business while providing the necessary investment back into the business to achieve your goals.


Step 7: Here are other areas of your plan to consider

·        Determine personal cash flow and income needs. Planning cash flow can be very difficult. However, having an accurate picture of expenses now and in retirement can ensure a successful retirement.

·        Implementing a pay yourself first philosophy can help jump start retirement savings if needed.

·        Manage debt Review all personal and business debt. This is often an overlooked aspect for business owners.

·        Appropriate strategies can help increase net worth in the long run. Having consumer debt in retirement can also make it very difficult.

·        Determine if your investment strategies include balancing risk, maximizing return and preserving capital.

·        Conduct a tax planning review to verify all available opportunities are being taken advantage of.

·        Do you have a plan in place to pay for your childrens college education? Utilize pre-tax dollars to pay for college.

·        Review that appropriate estate planning documents are in place.


There really arent any short cuts and you will need to invest time in determining where you are at and then implementing a plan to help achieve your goals. If you do so, you can take control.


Proper planning can provide business owners and their families with Peace of Mind.

Sincerely, Rick Epple, CFP®


Rick Epple, CFP®, is the founder and president of Epple Financial Advisors

(EFA). We at EFA work in our clients (including business owners) best interest to understand their unique issues and create a flexible but clear and direct road map to achieve their goals. This consists of a comprehensive and integrated wealth management plan and corresponding unbiased custom solution. Our plan will continue to guide and protect our clients in the years ahead, regardless of the changing market and economic condition.



Epple Financial Advisors, LLC

1000 Twelve Oaks Center Dr., Suite 101 Wayzata, MN 55391

Phone: 952-470-5049 Email: info@EppleFinancial.com 

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