Owning and operating a business alone can be challenging, andif you happen to own a business with your spouse or domesticpartner, you know there is a whole different set of issues you haveto face. In many instances, your business may be the main source ofincome and retirement funding. That means a lot more is riding onits success than households with separate sources of income. At thesame time, the success of your business may depend on how well youmaintain your personal relationship. According to one recent study bythe Marriott School of Business at Brigham Young University, divorcerates among business–owning couples are higher than for averagecouples.
First Set the Ground Rules
For people who are business as well as life partners, meeting withyour Financial Advisor is always a good place to start. Consider someof these simple steps as a way to begin a dialogue with your partnerabout your work–life balance.
- Choose your career carefully: You should both share a similar desire and both be committed to running the business. Don’t choose a career simply because it may be convenient or different from what you are accustomed to doing.
- Define responsibilities: Separate business roles from home responsibilities. Define your individual roles and stick to them.
- Avoid bringing work conflicts home: Let business disagreements be just that. Also, set aside time where business issues are not discussed.
- Understand the intensity: The emotional bond you share may also make business decisions more difficult. Be prepared to debate respectfully.
- Seek support: It often helps to consult a coach who specializes in work–life balance issues. Organizations like the International Coach Federation offer a referral service that matches coaches to your needs.
Separate Business and Personal Finances
It is essential to separate business–related finances from personalones, including your accounting. No matter what the financial healthof the business may be, strive to ensure that your family finances areprotected. When launching a business, realize that most start–ups takeat least three years to turn a profit. Be sure to amass adequate reservesto pay the mortgage, tuition and any other family costs during slowtimes. Also, don’t forget to pay yourselves a salary.
As mundane as this may sound, many business owners are so busyputting money back into the company that they fail to compensatethemselves properly. As spouses owning a company together, this isparticularly important since the business may be your family’s onlyincome.
Focus on Retirement Strategies
The most overlooked aspect of owning a business is preparing foryour own retirement. The lack of a retirement strategy among smallbusiness owners is very high. Recent census data shows 63 percentof small business owners don’t have a retirement strategy in place. Insome ways it’s understandable—owners have more immediate issueslike generating sales and securing health insurance. However, whenspouses are co–owners, achieving the life you want after you stopworking can be a challenge.
By working with a Financial Advisor you can review retirementstrategies that not only support your employees but also provide a securefuture for you and your spouse. There are a number of retirementstrategies business owners can consider.
Anyone can open a traditional Individual Retirement Account, andinvest up to $4,000 a year. As the business grows, the next step may beforming a Simplified Employee Pension (SEP) plan. You may be eligibleto create an employer–funded SEP plan, which has more generouscontribution limits, even when you and your spouse are the onlyemployees. Consult with an accountant and Financial Advisor to findout actual contribution limits.
Once your business is thriving, forming a defined benefit plan mayalso offer other advantages. Employers are required to make annualcontributions to ensure that the plan will contain sufficient assets topay the promised retirement benefits to employees when they retire.Constructing the plans requires considerable expertise, so consultwith a Financial Advisor and other experts as needed to set up andadminister the fund.
Regardless of how you choose to fund your retirement, it’s a goodidea to make sure you set up a qualified retirement plan, since suchplans are protected from creditors.
Finally, give some thought to the fate of the business you’ve workedso hard to build and what part it may play in your plans for retirement.You can start this process by asking yourself some important questions,such as:
- What is the value of my business?
- Will my business play a role in funding my income needs in retirement?
- Do I want the business to go on after I retire? Do I want to sell it or pass it on to my heirs or a partner?
- When should I start developing a formal business succession plan?
These are all important questions and finding out the answers beforeyou retire can make your transition away from day to day managementa lot simpler.
A True Partnership
Your Financial Advisor can be an essential partner who you andyour spouse can turn to in addition to your attorney and tax advisor.Whether it’s a financial strategy for your business or retirement planning,regular checkups with your Financial Advisor can help ensureyou meet your overall lifestyle goals while still keeping the companyprofitable.
Ultimately, by taking these practical steps, you and your spouse willbe able to enjoy the benefits of owning your own business, from theflexibility to set your own schedules to being your own boss and workingtogether to build a successful business partnership. Setting theground rules and looking out for your emotional, as well as financial,health can help both your partnership and your business thrive.
