How To Set Business Financial Goals To Meet Your Retirement Needs

Do you have goals like, “I want to build a business I can pass on to my children.” “I want a business to provide stability in my retirement years.” “I want a business I can sell something and have a big payoff.” Those are all retirement plan goals. So, if these are your goals for starting your business, or your reasons for starting your business, go ahead and watch this video, because you will want to know what goal you need to set this year to accomplish that goal when you plan to retire.

The next step, once you’ve decided that your goal for this year is to meet your retirement goals, is to download that workbook at the very end of this video and follow along with me to see what your goals for 2019 should be. Now that you have downloaded the workbook, follow along with me, go to the retirement tab, and the first thing you will notice is you’ll have to answer the age you would like to retire. Now, this is different from everyone. There is no right or wrong answer. Some people wish to retire earlier, maybe because they have other interests they want to pursue. Some people want to work for as long as they can possibly work before they drop dead. There’s no right or wrong answer, just answer whatever is right for you. Then once you’re done with that, enter your age. So, if you’re 20-25, 30-35, 39, that’s easy, it’s the difference between today and when you were born. There’s no in-betweens, your age is your age.

Enter the expected inflation rate between now and the time you expect to retire, 3% is a reasonable estimate. Enter your current revenue. So, if for the most recent year, you made $100,000, put that in there. Enter your average net income percent, so you can use your most recent year. So, if your most recent year, you had a net income percent of 30%, and you can get that from your financial software, so it’s your net income divided by your total revenue. So, if your net income was $30,000 and your revenue was $100,000, your net income percent will be 30%. But if you pull up your income statement and then you say show percentages, it will show you what that amount is right by the net income, so that’s an amount you could pull out.

Enter your owner’s salary as a percent of income. Again, you can get that from your financial statements. If you go to your financial statements and say show what’s the percentage of revenue, it will show you what percentage of owner’s pay, or revenues owner’s pay. Or you can just take your owner’s pay divided by revenue to get that amount. So, if you pay yourself $25,000 and you have a revenue of $100,000, the owner’s salary as a percent of income will be $25,000. Then also enter your annual expected living expenses at retirement, not now. So, let’s say, you want the income from your business to support you, your five children, and then the grandchildren, whatever income you think you would need at the time of retirement to support whatever goal your retirement is. So, if you’re trying to pass on to your children, you want to make sure that the business generates enough income support your children, answer that there. So, if you want it to be $280,000, whatever it is you need, just enter that amount there.

So, let’s scroll down and take a look at the goals. So, the present value, today’s value, the revenue you need to meet this goal is $1,120,000. The future value is $2,210,000. To meet your future goal, you’ll need $552,604 in salary. So, it doesn’t necessarily mean it has to be salary. Some of it could be distributions, dividends. How do you take the money out is not the topic of discussion. The point is that’s how what you need to take out. And then your net income will be $663,125. So, in other words, you need $2,210,417 in revenue to meet your needs of $552,604 in the next 23 years. To make this happen, from where you are right now, you would need a growth rate of 14% each year for the next 23 years to make it happen.

What happens if you want to retire earlier? Maybe you would say, “Oh wow, 14%, I can do that. Let’s see what happens if I want to retire in three years, so if I want to retire at 42, what happens?” So, we look down and our goal is now 130% growth rate, so we have to grow our business at a rate of 130% every year to make it happen. So, the shorter the time you have, the faster you have to move. The longer the time you have, you don’t need to move as fast.

In the case where you want to sell your business, your business still has to be big enough to meet your annual expected living expenses. So, this computation is still valid. The only difference is you will get a multiple of your business revenue. So, depending on what industry you are in you might get one times your revenue, you might get two times your revenue, three times your revenue, whatever that is specific to your industry. So, you might want to just do some research and see what businesses your industry usually sells for. But here’s the risk. The risk in selling your business is finding of an investment opportunity that provides the same level of income as your business. Now, with your business, you have tons of control. You can decide, you have a lot of say so in how much dividends you get, how much salary is paid out. When you go out and you have investment opportunities, the likelihood is you will have less control. And so, basically, you are at the whims of the market. So, if selling is really what you want to do because you have a business and you just don’t want to worry about the risk of the market and other risk, and you’d rather deal with the investment risk, that’s great, that’s fine. Just make sure you find yourself a good financial planner who can help you invest that money and makes sure you have the income you need.

So now I have shown you what you need to do to meet your retirement plan. It does not matter if you plan to pass your business down to your children, or you want to provide stability in your retirement years, or you want to someday sell and have a big payoff. Every single one of those goals have to be intentionally planned year after year with a prescribed role play. So, we’ve seen how to come up with that growth rate for this year so you can meet that goal if it’s four, five, 28, 30 years from now. This is not going to automatically happen. You have to have a plan in place. So please, if you haven’t done so, download the workbook and work your plan. And then once you know what your growth rate is, you can now work through a marketing plan around that growth rate. Like what you see? Go ahead and click the subscribe button on the very bottom of this video. I look for to seeing you in future videos!

By |2019-01-08T00:11:51+00:00January 21st, 2019|2019 Financial Goals|Comments Off on How To Set Business Financial Goals To Meet Your Retirement Needs

About the Author:

With over 16 years of accounting and finance experience, I know what it takes to make your business profitable. However, in my opinion of what really makes me qualified to work with you is my love for using my God-given gift to help people with numbers. I love difficult problems and my business is to be in the business of helping other people achieve their dream/vision/ goal in the most cost effective and productive way. I am very passionate about my clients and take their problems very personally.