Small business owners are confident in many key areas of running their businesses, including handling finances, knowing when to hire and managing employees, according to a new survey from TD Bank, USA.
However, life after entrepreneurship and personal finances presents a different story - more than one-quarter (26 percent) of small business owners are not confident they will have enough savings to retire comfortably, says the press release of TD Bank.
The survey found that when it comes to planning for retirement, nearly half (47 percent) of business owners said they do not yet have a plan in place, while approximately one-quarter indicated they would close the business. The survey was conducted on more than 660 small business owners.
We asked financial advisors whether the situation is similar in India and how small business owners should plan their retirement.
Lack of awareness
“Although small business owners indicate high level of confidence in handling finance, human resources and other aspects of business management, about 73% of owners do not have a financial advisor or a dedicated banker for financial planning and small business leads,” reveals the TD Bank study.
Pawan Mehar of Dhanbazaar says that the situation is somewhat similar in India. “Not many business owners consult advisors. A financial planner would help business owners not only manage their business cash flows better but will also help manage their personal finances.”
Treat earnings as monthly salary and diversify
Generally, small entrepreneurs do not tend to save as much as salaried class people do. Hemant Rustagi of Wiseinvest Advisors explains, “Small business owners always have a tendency to spend more. This is essentially because they do not treat their earning as monthly salary.”
Also, entrepreneurs generally prefer to invest in their own businesses as they believe that their business will generate higher returns as compared to other asset class. They need to diversify and invest in other asset classes apart from their business, advises Hemant.
Where to invest?
Financial advisors says that diversified equity funds are best suited for business owners to build a retirement kitty.
Small business owners can also invest in debt funds if they are looking to meet short term goals. “A mix of both equity and debt should be recommended for small business owners. Putting all savings in equity funds is not advisable as the business owners might want to plough back some investments in business,” points out Hemant.
Financial advisors say that once having started retirement savings, small entrepreneurs should not dip into their retirement savings to fund their business as this can be a risky bet. “The money invested in business may not yield the desired result. Withdrawing from retirement kitty to fund business is risky,” says Pawan.
Just the way business owners set the goal of their business, they must plan their retirement diligently.
