Monday Column with Timi Olubiyi, Ph.D.
A great number of small business owners across Nigeria do not have a sustainable retirement plan for themselves. With managing and growing a small business, a retirement plan may seem like an unnecessary distraction. Even though retirement plan can help ensure that a business owner will have enough money to live on in their later years. Surprisingly as important as a retirement plan is, only a few determined business owners consider it imperative early enough to it set up. Many entrepreneurs are so busy growing their businesses that they put off planning for retirement. Context observation around Lagos State with a follow-up survey carried out in the popular Computer Village in Ikeja area of the State with few respondents indicate that entrepreneurs of small businesses especially micro-businesses are only willing to grow and expand their businesses at the expense of a retirement planning. Few mentioned that the only motivating factor to increase their confidence about retirement is if their business succeeds.
The survey further indicates that the majority of the SMEs especially the self-employed do not have retirement savings plans, and 40% of business owners in the survey are not confident that they will be able to retire before the age of 65. Nevertheless, the good news is that those small business owners have more options available to them than traditional 9am to 5pm office employees. One of these options is the flexibility of the date of retirement. Retirement can either be considered early or choose not to retire at all. It’s up to entrepreneurs to determine exactly when to stop working.
Indeed, according to the survey, 70% of the self-employed and entrepreneurs in Computer Village do not save regularly for retirement. The reason adjudge to this phenomenon is that they do not receive a steady salary pack, so many of these hardworking individuals forgo retirement plan. The survey further highlights that some of the small business owners have the mind of selling their businesses to fund their retirement and relocate to village when the time arises. However, the risk of this option is that entrepreneurs and small business owners can overestimate the value of their businesses and eventually run at lost. Counting entirely on the sale of the business to fully fund a long retirement is highly risky due to unforeseen circumstances.
The survey also found that many business owners would appreciate guidance when it comes to retirement because they lack knowledge of it. It is important to note that before death, especially under normal conditions in life, there is a phase called old age; a period where entrepreneurs have almost exhausted intellectual values and strength. Consequently, there is a need to prepare for such phase of life with adequate retirement planning.
Retiring is a real-life changing phase with far-reaching implications, dreadful stories most entrepreneurs would not want to hear or discuss this reality but unfortunately, there is nothing one can do about it; it is bound to come one day. Business owners cited cost and lack of resources to administer the plan as the leading reasons why they do not have a retirement plan in place.
Please note if you are a small business owner reading this, you are likely busy running your business and have not had the time to research the best retirement option. While retirement may not be on your mind currently as an entrepreneur, the sooner you start planning for this all-important aspect of your business the better. Here are simple steps entrepreneurs and small business owners can take right now to prepare for retirement.
A good start is by implementing the 10% rule which is a lot easier than you can comprehend. The good start is simply by setting up an auto-transfer system with your bank, automatically transferring 10% of all your earnings out of your business account into your savings account every month. Then you can place the accumulated fund into a low-risk investment at intervals and allow compounding interest to grow your fund. This applies whether you are an entrepreneur or not. It’s a simple trick to grow your wealth and be financially independent at retirement.
Another approach is to develop an Exit Strategy, that is, have it in mind right now what will happen to your business when you retire and when you intend to eventually quit and start working towards it accordingly. One other important factor to consider is what will happen to your business when you retire. Will you pass it on to family or sell the company to another business or owner? Will you have someone currently working for you take over and buy out your interests? A simple retirement model can give you a simple leeway, but you have to plan for it and stick to it. Because retirement age varies so drastically, small business owners need to evaluate their lifestyle, savings and the company’s overall performance to determine an ideal retirement option.
In conclusion, with a bit of research, adequate planning and goal setting, preparing for retirement can become less puzzling and much more achievable. Information on what type of financial wellness programs that may be the most impactful for your business, useful tips on retirement planning and solutions that can help your business meet fiduciary obligations, and to develop better retirement savings habits can be shared with you. Therefore, if you need help with creating a retirement plan that is smart and effective for your retirement, business, for example, implementing easy-to-use technology, investment management services to aid retirement planning, you need to get across. A professional can help you streamline your business and help with the necessary details required to have a comfortable retirement. Good Luck!
Dr Timi Olubiyi holds a PhD in Entrepreneurship and Small Business Management. He is a Chartered member of the Chartered Institute for Securities & Investment (CISI) and a financial literacy specialist. He can be reached via email firstname.lastname@example.org and twitter handle @drtimiolubiyi