In retrospect, Byrd says she believes she should have laid off staff members and made other adjustments before stopping her own pay.
Gerber said owners should stop saving only if it is clear the business can be turned around. If not, there probably are bigger problems, and stopping saving isn’t going to solve them. “You often have to do some real soul searching to figure out why the business is struggling,” he said.
Of course, there are times when it makes sense to hold off on saving personally to invest more in the company. In these instances, Gerber said, the business should be running smoothly, and the investment should promise a healthy return. He likes to see an investment, like a new piece of equipment, generate a return that is three times greater than can be gained in stocks or bonds. If it cannot do that, he advises putting the cash in a personal account.
BUY THE BUILDING
Although Lenny Verkhoglaz invests in an individual retirement account, he thought he should hold more than just stocks and bonds in his overall portfolio. In 2006, Verkhoglaz, the founder of Executive Care, which is based in Hackensack, N.J., and provides in-home health care to the elderly, bought the building that holds his offices.
When he retires, he plans to sell his company and the building together. He holds the building in a separate company for rent-related purposes but thinks he will get a better price by selling the two assets together. “If I sell the company without the building,” he said, “the value of the real estate may go down if the company moves out and another tenant doesn’t take its place.”
Even so, Gerber suggests keeping ownership of the company and the building separate. That makes it possible to sell the company and keep the real estate, collecting rent from a new occupant. A separation can also limit liability, Gerber said.
There is another advantage to owning your own building: you do not have to deal with a landlord who might raise the rent or evict you. And as a real estate investor, you have a dream tenant: yourself.
KNOW YOUR BUSINESS'S WORTH
If selling your business is any part of your retirement plan, Gerber said, it is essential to know what your business is worth. And it is important to start tracking its value long before you plan to sell.
Gerber suggests hiring a professional who can figure out the current value of your company. Then determine how much money you will need to live the lifestyle you want. Most important, think about whether you will be able to increase the value of your business enough to match that retirement number.
At age 43, one of Gerber’s clients decided he wanted to retire at 50. To do so, he determined, he would need to build his business to $20 million in revenue from $10 million. Doing that meant finding new distribution channels to sell his products. It is working, Gerber said, but if it was not, he would have to think about retiring later. “It’s about the math,” he said. “It needs to be clear.”
Business owners also must be prepared to sell early if their business or their industry starts to head south. Another of Gerber’s clients was in a sector that was consolidating quickly. She received an offer on her business that was far less than she believed it was worth, but she decided to take it, knowing that it would be tough to compete against the big players beginning to dominate the market. “If you think the number will get worse and not better,” he said, “then get out when the getting’s good.”