Home Contributors Westchester William D. Winters: Post-pandemic considerations for business owners

William D. Winters: Post-pandemic considerations for business owners

The other day, I spoke with a business owner who shared how she tapped into her personal savings, reduced her salary and stopped contributing to her retirement plan in order to keep her company and employees afloat during the Covid-19 pandemic. She’s hardly an anomaly.

While her sacrifice is to be applauded — along with that of the countless others who made hard choices, including lowering their tax withholdings, shedding office space, obtaining PPP funding and/or EIDL loans or coming up with clever ways to forge forward — now is the right time for business owners and senior leaders to regroup and replenish, including thinking about their own long-term plans and financial health.

Look ahead
A business and future equity in it, through hopes of selling it and living off the residuals or future profits, cannot substitute for proper retirement planning. As we saw this past year, a sudden economic shift can foil the best laid plans, which is why a more diverse approach is recommended.

One smart step is to bring in a financial adviser to help calculate your true cost of living once you’re not running or working day-to-day in the business. Ideally, this professional will help you put together a financial plan that includes retirement, asset protection and an estate plan. They can also review retirement plan options, including a Simplified Employee Pension-IRA, (Savings Incentive Match Plan for Employees) SIMPLE IRA, Solo 401k or SIMPLE 401k and help determine which is the best fit for the business structure. A target-date fund can help automate the process, since it adjusts the balance of fixed-income investments and stocks based on age and projected retirement timing, and be a wise option to explore.

Start saving (again)
Too few businesses had healthy emergency funds in place before the pandemic and a lack of cash on-hand can lead to major financial instability. This can be due to a shift outside of the business owners’ control, such as an economic downturn or global health crisis or something as simple as a lack of access to materials. Start rebuilding that important safety net with a few simple, but savvy financial moves.

A best practice is to keep at least 10% of your annual revenue in savings, socking away chunks of money when business is booming and automating a minimum contribution outside of that.

It’s also helpful to consider unexpected expenses and plan for them in the budget and to look back at what kept your business functioning during the recent crisis and make note. Keep a close eye on operating expenses, but also think about seasonal shifts and plan ahead for them. Most businesses have a peak season or slower time of year. Most all of, keep your focus on the future and ways to anticipate the realities of running your business.

Rethink retirement
While it’s tempting to shy away from contributing to retirement, doing so can be beneficial as it reduces your current tax bill and helps those dollars grow tax-deferred until they are needed in retirement. Different plans work best for different businesses, and the best option depends on the number of employees, corporate structure and other factors. Typically, a SEP-IRA, a SIMPLE IRA, a Solo 401k and a SIMPLE 401k are the four main options to consider.

While drastic measures helped many a business owner fight their way through and stay solvent, it’s the vision and bold belief in the future that got most entrepreneurs to where they were before the pandemic. It’s time to return to that mindset, not only to grow businesses again, but to stimulate the economy and to grow jobs and opportunities for employees. Most of all, with the right approach, business owners can ensure they enjoy the fruits of their hard labor and sacrifices for many years to come.

William D. Winters is a managing director at Tompkins Financial Advisors in Mount Kisco. He can be reached at bwinters@tompkinsfinancial.com and 914-946-1277 ext. 33020.

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