As a small business owner, it's important to have a sound personal financial plan as well as a sound business strategy. Paying close attention to your personal savings now can help you to eventually retire on your own terms.
It is imperative to maximize retirement contributions and amass personal savings so that you do not have to rely solely on selling your business for retirement. Keep in mind that you cannot anticipate whether you will be able to find a buyer when you choose or if market conditions will be ripe when you want to retire.
Before making personal financial decisions, consider your answers to each of these five questions:
Have you considered the basics? Depending on your circumstances, the basics can mean making sure you have a sufficient cash reserve to cover not only a financial emergency but also any opportunities that require quick action. The basics can also include making sure that you have paid off all credit card and nondeductible debt (including outstanding margin loans). If you do not consider these issues first, you might find yourself being forced to sell assets at a loss to raise cash quickly.
Have you done all your rebalancing? The purpose of rebalancing is to buffer against market events, corrections and increased exposure to price swings. The best investors rebalance their accounts as appropriate--making sure they have the levels of stocks, bonds and cash they are comfortable with--before they make any new investments. Rebalancing also lets you take advantage of market conditions that may have changed, such as interest rates.
Will you need the money soon? Remember the basic rule of thumb: if you are going to need the money in the short term (to pay upcoming college tuition, for example), consider investments such as short-term Treasuries, intermediate-term bonds and cash equivalents like CDs and money market accounts.
Do you have time on your side? This is the converse of the previous point. If you are investing for the long term, stocks have usually provided the highest returns and the...