As an accountant and business coach for owners of start-ups and small businesses, I get the question from time to time concerning saving for retirement. “Should I save for retirement?” Many times my advice is “no”. To clarify, I do believe that savings for retirement is up there on the priority list. After all, who wants to work until the day the fall over. However, when saving for retirement competes with cash flow and the short-term financial needs of both your business and personal life, I believe retirement savings takes a back seat.
In a recent article published in the Plain Dealer, it was reported that 6 in 10 Americans do not have savings to cover emergencies – an unexpected car repair or medical bill for instance. I assume this statistic may be the same or worse for an owner of a start-up or a small business within its early years.
As a small business owner, your business successes and failures have an influence on your personal finances. So should you save for retirement? If you can meet these 3 criteria, save away – 1) your business has stable cash flow, 2) your business bank balance is equal to at least 3 months of operating expenses and debt payments, and 3) your personal bank balance is equal to at least 3 months of living expenses and debt payments.
My comments above are a loose guide. Everyone situation is different, and all the variables need to be considered. Paying off high-interest credit card debt comes to mind for instance. You should always work with a certified financial planner to help you plan out your finances. However, your financial planner, tax preparer, and accounting service provider (like Interworks) can work together to come up with the best plan for both your personal and business financial affairs.