Savings Options for Small Businesses, Part 3

Part 3: Building a Long-Term Plan for Your Future

Most small business owners spend their days thinking about customers, cash flow, and keeping their businesses healthy right now. What many don’t think about—at least not soon enough—is their own long-term financial future.

In Parts 1 and 2 of this series, we covered:

• How to build short-term savings and cash flow stability
• How to avoid panic-spending at year’s end
• Smarter uses for surplus cash

Now, in Part 3, we’re pulling back the lens even further to look at the most overlooked piece of a small business’s financial health: retirement planning for the owner. Someday, you’ll leave your business. The question is, will it take care of you when you do?

Why Relying on “Selling the Business Someday” Is Risky

By Financial Advisor Dan Stich, CPFA

A lot of owners assume the eventual sale of their business is their retirement plan. It’s a comforting idea—but a dangerous one.

Here’s why:

• Market conditions can change. (Think: COVID, supply chain issues, inflation.)
• Revenue or customer flow can soften as the owner ages or slows down.
• Business value often drops if a successor isn’t in place.
• A sale involves capital gains tax—meaning you won’t receive full value anyway.
• Life events can force an earlier exit than planned.

I’ve seen it many times. Owners assume their business is the “big payday” waiting for them. But if something disrupts operations, that payday shrinks—or disappears altogether. A far healthier approach is to let your business help fund multiple assets for your future and not rely on a single sale.

Retirement Savings: A Tool Most Owners Underuse

Many small business owners put every dollar back into the business. It feels responsible. It feels entrepreneurial. It feels necessary. But it can leave you retirement poor, even when the business looks successful.

I strongly believe: (1) your business is not your retirement; and (2) your business should fund your retirement. That shift in thinking is what unlocks long-term stability.

Retirement Plans for Small Business Owners: What Are Your Options?

There is no one-size-fits-all plan. Each structure offers different contribution limits, tax benefits, and administrative requirements. Below is a simple overview of what I discuss with clients based on their revenue, goals, and number of employees.

1. Traditional IRA

• Low administrative burden
• Contribution limit is lower (around $15,000 combined depending on year and type)
• Works well for brand-new or low-revenue businesses

Good for: Solopreneurs just starting to save

2. SEP IRA (Simplified Employee Pension)

• Easy to set up
• High contribution limits (up to 25% of compensation)
• Must contribute equal percentage to all eligible employees

Good for: Solo businesses or owners with few employees

3. SIMPLE IRA

• Low cost
• Requires employer match
• Popular with small businesses that want to offer benefits without the complexity of a 401(k)

Good for: Growing businesses with a small team

4. Solo 401(k)

This one surprises a lot of people. Even a business of one person can open a 401(k). It’s often one of the most powerful tools for solo operators with strong cash flow. Benefits include:

• Higher personal contribution limits than IRAs
• Ability to contribute both as “employee” and “employer”
• Profit-sharing options
• Potential to save significantly more per year

5. Full 401(k) for Businesses with Employees

• Offers the highest flexibility
• Allows employee contributions plus employer match and profit-sharing
• Comes with administrative costs, but there are now lower-cost startup options
• May soon become mandatory in Wisconsin (more on that below)

Good for: Businesses planning for growth or wanting to offer competitive benefits

6. Cash Balance Plan (Advanced Option)

This one is lesser known—but extremely valuable for high earners. A cash balance plan is a type of pension-like account allowing very large contributions, often hundreds of thousands per year, depending on age and income. Why use it?

• Major tax reduction
• Rapid retirement asset growth
• Works well for owners earning more than they need to live on

Though not for everyone, this tool is transformative for successful small business owners looking to accelerate retirement savings later in life.

Understanding the Tax Advantages

One of the biggest benefits of retirement contributions is tax deferral. Every dollar contributed lowers taxable income today, grows tax-deferred, and builds long-term future security.

I often ask business owners, “If you had to choose, would you rather pay the government or pay your future self?”

Most owners immediately know the answer.

Why Wisconsin Small Businesses Need to Pay Attention Right Now

One of the most important changes coming for Wisconsin business owners is the high likelihood of a state-mandated retirement plan requirement. Many states already require employers to offer a retirement option (with automatic enrollment). Wisconsin is one of the last holdouts.

With a fair degree of certainty, I believe Wisconsin will implement a retirement plan mandate. It’s not a matter of “if,” but “when.” When that time comes, businesses will need to offer employees a retirement plan, automatically enroll new hires, and manage contributions unless employees opt out.

Getting ahead of this—not waiting until the mandate arrives—means:

• accessing early tax credits
• choosing the plan that best fits your business
• avoiding rushed or expensive solutions
• strengthening your business’s financial structure now

Many low-cost, advisor-supported 401(k) options exist today that didn’t ten years ago. Startup costs are often partially offset by federal tax credits.

The Real Mindset Shift: Your Business Should Support You, Too

Many small business owners love what they do. Their work becomes their identity. Their business becomes their “baby.” Because of that, they tend to reinvest everything, delay paying themselves, and assume they’ll “figure out retirement later.”

But later often arrives faster than expected.

Your business shouldn’t compete with your retirement. Your business should fund your retirement.  And long-term planning means:

•  rewarding yourself for your hard work
• letting the business generate value for you personally
• securing stability for your spouse or family if something happens
• ensuring retirement is a choice, not a forced exit

Your future shouldn’t depend on the perfect business sale at the perfect moment in a perfect market. You deserve something more reliable than that.

Final Thought: The Habit of Saving Starts Now

Saving—whether personally or as a business—isn’t a single decision. It’s a habit that forms over time. Just like individuals who learn to “pay themselves first,” small business owners must adopt a similar mindset:

• Save intentionally
• Save consistently
• Save with a long-term purpose

Even small steps accumulate. And once established, the habit sticks. You can’t afford not to save, for your business or for yourself.

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This three-part series has covered short-term stability, smart use of surplus cash, and long-term retirement planning. Wherever you are in your business journey, the best time to start strengthening your financial future is now.

Dan will soon be hosting a complimentary virtual session, What to Do With Your Profit: Smarter Moves for Small Business Owners. To join the interest list, call or text 262.853.4541 or email [email protected].

Daniel Stich, CPFA — And Small Business Milwaukee Advisor
Stich Financial Partners
Independent financial & insurance planning. Multiple carriers. Client-first approach.
262.853.4541
[email protected]
N27 W23957 Paul Road  |  Suite 105  |  Pewaukee, WI 53072