Retirement Income Strategies For Small Business Owners

A six-figure business doesn’t mean long-term wealth. You can run a successful business for years and still end up with nothing. Because profit isn't the same as wealth. Most business owners focus on revenue, profits, and keeping the lights on. But what if your business wasn’t just funding your lifestyle but actively building your long-term wealth? Because honestly: 👉 You won’t want to run this business forever. 👉 Relying solely on profit withdrawals won’t make you wealthy. 👉 If your business isn’t supporting your future, what’s the end game? Your goal shouldn’t be to just make money,  It should be to turn that money into assets that work for you. Here’s how you can do that: 1. Pay yourself smarter Most business owners take money out however they can → salary, dividends, ad-hoc withdrawals. But tax efficiency is key. The less you lose to HMRC, the more wealth you keep. ✅ Use a low salary + dividends structure to reduce tax. ✅ Use salary sacrifice for pensions, so your business funds your retirement tax-free. ✅ Claim legitimate business expenses so you’re not paying for things personally. 2. Use your business to build assets Your business shouldn’t just generate cash, it should create wealth. ✅ Pensions – Your company can contribute up to £60K per year, fully tax-deductible. ✅ Property – Buy an office through your business, build equity, and avoid rent costs. ✅ Investments – Use surplus profits to invest in stocks, funds, or other assets under the company structure. 3. Think beyond the business One day you’ll want to sell, scale back, or exit completely.  But if you don’t plan for that now, you might end up with a business that’s worth nothing without you. ✅ Create systems and processes so the business can run without you. ✅ Think about your ideal exit → sale, succession, or passive ownership? ✅ Build value in a way that makes your business sellable. Your business should be your biggest asset, but only if you structure it that way. Because the end goal is financial freedom. Use your business wisely, and it can fund your future, build assets, and give you financial freedom. Are you using your business to build wealth or just getting by month to month?

She paused. Took a deep breath. "I feel like I'm always robbing Peter to pay Paul." She's a business owner doing $1.5M a year. Hair care brand. Salon services. Real estate on the side. $5M in property. Owns her car outright. No kids. On paper she's winning. But she needs $350K a year just to live. She's paying herself in owner draws instead of a real comp structure. The real estate isn't cash flowing. It's breaking even. Everything sits in her personal name. Over half a million in equity she can't actually use. Here's the line that stuck with me. "I know I need to handle this, but it sucks that my business revenues are going down." That's the trap. Because now she has to keep working at full speed just to sustain the lifestyle. Here's what the right structure unlocks for her. S-Corp election with a $250K salary plus distributions instead of owner draws. Estimated savings: $40K a year in self-employment tax alone. Convert one of her long-term rentals to a short-term rental and qualify for STR tax status. That unlocks accelerated depreciation she can use against her $1.5M in active income. Potential first-year tax shield: $50K to $150K depending on basis and cost segregation. Open a Solo 401(k) inside the S-Corp. Max employee plus employer contribution: up to $72K a year in tax-deferred retirement that wasn't on her radar. Stack a cash balance plan on top of it and we can push total deferred contributions north of $200K a year depending on age. The math is real. The structure is what makes the math possible. More income doesn't set you free. The right structure around that income does.

Had a strategy session last week with a client earning about $700K a year. Strong income. And on paper, his position looks great. 9 residential properties. Plus an SMSF residential asset. Plenty of equity. Plenty of options. His goal though is very clear: Step back from work by 2030 and live off $250K NET income. So we pulled the portfolio apart properly. Here’s the uncomfortable truth: Even if he retired with minimal debt, his current residential-heavy portfolio still wouldn’t get him there. Not because it’s bad. But because it’s doing the wrong job. Residential is excellent for growth. It’s average for income. And it struggles to replace a high salary inside a short timeframe. At his level, the question isn’t “Will this portfolio grow?” It’s “Will this portfolio actually pay me what I need to live?” The answer was no. So we changed the plan. Instead of adding more residential and hoping rents catch up, we shifted the portfolio from growth to income. That meant introducing two commercial assets. Roughly $3M each. Targeting 6–6.5% net yields. Long leases. Triple-net where possible. Clean, predictable cashflow. On their own, those two assets form the backbone of the income plan. But the real leverage came from what we sold to fund them. We didn’t sell randomly. Sale one: his old owner-occupier. Why? Because a large portion of the capital gain is CGT-free. Same sale price as an investment property, very different number after tax. Selling an old PPOR is one of the most tax-efficient ways to free up capital. Ignoring that is a mistake. Sale two: a residential asset with huge equity… and one of the lowest rental yields in the portfolio. It had done its job from a growth perspective. But the rent never kept up. Great for net worth. Terrible for income. Now here’s the part most people miss: We didn’t just recycle all that capital straight into new deals. First move is to wipe his owner-occupier debt completely. That alone freed up about $6,500 a month. No tenants. No vacancy risk. Straight into the bottom line of his personal P&L. Then, with the remaining capital, we moved into the two commercial assets. Higher yield. Longer leases. Less management noise. Income that actually moves the needle. When you map it out properly, the outcome is simple: - Residential got him wealthy - Commercial gives him income - CGT-free capital made the transition efficient - Clearing non-deductible debt increased certainty This is the mistake I see all the time: People keep buying the assets that worked in their 30s, even when their goals have shifted to income, certainty, and time freedom. Growth gets you there. Income lets you stop. Different phase. Different tools. Residential got him this far. This reshuffle is what gets him across the line.

Over the past 5 years I have spoken with roughly 100 small MSPs (under $2.5m in revenue) about their exit plans. Too many of these owners are counting on a significant exit to fund comfortable retirements. For a huge majority of them, that event isn't coming. First, there aren't many buyers willing to transact with an MSP that small. Second, the value of a small MSP is, well...small. The average MSP in this size range will sell for about $500k. In the rare and absolute best case, a well run $2.5m MSP with 20% EBITDA margins will sell for $2m. After fees and taxes the owner will be left with less than $1.5m. Subtract from that any business debts. If that owner has a partner or shareholders the story gets even worse. So what should the owner of a small MSP do? How do they exit to a comfortable retirement? Here's what I recommend: 1. Emphasize CASHFLOW - reduce expenses, raise prices, and bill for everything. Use some offshore labor. 2. GROW - adding just a few larger accounts at the right price will have a significant impact on your ability to generate cash. You may not be a natural salesperson but you can build your network in the industries that you think are best for your business. Ask for referrals. Let your network know that you want new clients. $50k in new MRR can double your profits. 3. SAVE - you are going to have to fund your retirement on the operating results of the business as opposed to exit proceeds. Live below your means and save aggressively (this is good advice for everyone, really). 4. IYCBTJT - if you can't beat them, join them. Instead of selling to PE-backed brand, consider selling to a larger, more successful MSP in your market in exchange for equity. 10% of a growing, well-run $5m MSP is worth more than 100% of the MSP that you have today. You will enjoy profit distributions along the way to a better exit down the road. Any other ideas? How can small MSPs build the best exit strategy? #MSP

The QBI (Qualified Business Income) deduction rewards strategy. It's not about luck. It's not about last-minute scrambling. It's not reactive tax filing. Instead, it rewards intentional planning. ❌ No structure = lost deductions ❌ No timing = missed leverage ❌ No coordination = higher taxes Because here’s the reality: QBI isn’t automatic. It’s earned through how you invest, pay, structure, and plan. What’s the key to getting this right? 💙 Clean structure protects eligibility 💙 Early planning multiplies deductions 💙 Smart reinvestment compounds tax efficiency Here’s how to maximize QBI with strategic investments: 1/ Invest in business assets – Equipment purchases increase qualified income 2/ Time capital spending – Bonus depreciation accelerates deductions 3/ Optimize W-2 wages – Reasonable pay unlocks higher QBI limits 4/ Use retirement contributions – Lower taxable income while preserving QBI 5/ Structure real estate correctly – Certain rentals can qualify as a trade or business 6/ Separate high-income services – Entity structuring protects eligibility 7/ Track deductible expenses precisely – Clean books = maximum qualified income 8/ Reinvest profits strategically – Strong reinvestment strengthens deduction outcomes 9/ Avoid income spikes – Smoothing income prevents phaseouts 10/ Review entity type annually – LLC vs S-Corp vs partnership matters 11/ Coordinate personal + business taxes – One plan beats siloed decisions 12/ Work with a pro before year-end – QBI rewards planning, not December panic So, remember: QBI isn’t a loophole. It’s a reward for disciplined planning. Plan early. Structure intentionally. Review before December, not after. Which QBI strategy will you commit to this year to maximize your results? Follow me Marc Henn for more. We want to help you Retire Early, Supercharge Your Cash Flow, and Minimize Taxes. Marc Henn is a licensed Investment Adviser with Harvest Financial Advisors, a registered entity with the U. S. Securities and Exchange Commission.

I paid $30,000 to learn this. You get it for free. 💰 A few years ago, I hired a financial advisor. Not just to help me run my business - but to help me run my life. Because as small business owners, here’s what usually happens: We think about reinvesting. We think about hiring. We think about growth. But we forget about ourselves. Someday you’ll get tired. Someday you’ll fall out of love with your own company. And if you don’t build a system that takes care of you, no one will. Here are the top 3 things you should start doing right now: 1. Start an S-Corp. It saves you ~13% on self-employment tax. At a certain stage, it just makes sense - the savings pay for the setup. 2. Pay yourself a salary. If you’re only taking "owner’s draws", the IRS will ask questions. Pay yourself what other founders in similar businesses earn. 3. Build your retirement plan now. I use a Solo 401(k) + Roth IRA - tax-free growth, contributions as both founder and employer. And if you’ve got cash sitting in a checking account, move it to a money market fund (mine earns ~4%). It covers bank fees and actually makes your money work for you. 💡 Bonus tip: talk to your CPA about write-offs. That mic you record with? Write-off. That studio corner in your living room? Write-off. Business travel with your spouse? Write-off. Be strategic about your money - because if you don’t take care of it, no one will.

Powerful strategy for solopreneurs: - Start an LLC - Grow and Become an S Corporation: This can provide significant tax advantages by allowing you to split your income between salary and distributions, potentially reducing your overall tax liability. But make sure to optimize the qualified business income deduction - Pay Yourself a Reasonable Salary: As an S Corp owner, pay yourself a reasonable salary that reflects the market rate for your role. This salary is subject to payroll taxes, but any additional profits can be taken as distributions, which are not subject to self-employment tax. - Add a Solo 401(k) and Max It Out: Establish a Solo 401(k) plan to take advantage of tax-deferred retirement savings. As both the employer and employee, you can contribute up to the maximum allowable limit, significantly boosting your retirement savings while reducing your taxable income. But make sure your salary is not too low, it will impact what can go in here - Employ Your Spouse: If your spouse can perform meaningful work for your business, employ them and pay a fair salary. - Max Out Solo 401(k) for Spouse: By employing your spouse, you can also contribute to their Solo 401(k) plan, further increasing your family's retirement savings and reducing your taxable income - Backdoor Roth IRA for Each: Utilize the backdoor Roth IRA strategy for both you and your spouse. This involves making non-deductible contributions to a traditional IRA and then converting those funds to a Roth IRA, allowing for tax-free growth and withdrawals in retirement - Maximize Qualified Business Income Deduction (QBID): Take full advantage of the Qualified Business Income Deduction (QBID), which allows eligible S Corp owners to deduct up to 20% of their qualified business income (or lesser of that and 50% of w2 wages). This can significantly reduce your taxable income and increase your overall tax savings. - If salary is too low to max solo 401(k), then do mega backdoor Roth 401(K) to the $69,000 limit Implementing these strategies can help solopreneurs optimize their financial planning, reduce tax liabilities, and build substantial retirement savings

You're making $200,000 as a solo biz owner. One vehicle can boost your wealth strategy dramatically. A Solo 401(k). It's just like a regular 401(k). But you get more flexibility with it. You can contribute up to $23,500 on the employee side. Each of which can be either pre-tax or Roth. (It's not an IRA so no income limits) But that's not all. Since you are also the "employer", you can also match in here. This amount can be up to 20%-25% of the salary to the employee (AKA yourself) However, that's not where the magic occurs. If the plan allows and you have enough income, you could contribute additional after-tax money into it. This money can then be converted into the Roth portion. Also called a Megabackdoor Roth. So in summary: The employee limit + employer match + after-tax = $70,000 limit for 2025 It essentially becomes a super vehicle for solo biz owners. - More investment choices - Larger contribution limits - Better choices in tax location - More flexibility with administration You should always prioritize reinvesting in the business. But when you are ready to diversify away? This is your partner in finance.

36 year old Makes $180K/year with his W-2 and another $80K/year with 1099 consulting income. His wife also makes $100K as a W-2 Before we talked: - $50K SEP IRA - $300K brokerage with significant capital gains - Maxes his company 401K - Wife also maxes her 401K After we talked: - Open a 529 plan for their 1-year-old child in Georgia, this gets them the state tax deduction for contributions if they want it and starts the 15-year clock to roll up to $35K to a Roth IRA if necessary - Open a solo 401K. Get the $1,500 EACA tax credit - Move his $50K SEP IRA and two rollover IRAs to the new solo 401K to free up the backdoor Roth strategy for him and avoid pro rata. Wife is good to go on a backdoor Roth and total this shelters $14K/year of investments - We'll see how much he wants to do but he can put up to $70k into his new solo 401K on top of what he puts into his company 401K plan. $0 employee is allowed up all $70K could be done as a mega backdoor Roth or he can do it as $16K employer/$54K mega backdoor Roth - Use Frec for their direct indexing strategy. He's got about $150K of capital gains in his brokerage and no way out without paying taxes. Adding direct indexing diversifies to a simple S&P500 and creates losses on paper that can be used against the gains he has. Example: $100K of losses offsets $100K of gains and saves him $15K of taxes plus 5.39% for Georgia This covers some more of the bigger moves but there were a few other good things we cleaned up as well like reducing fees in his current/old 401K plans, adjusting 20% Roth contribution to 10% pre-tax, 10% Roth, and a bit of strategy on putting the right investments in the right accounts for more "tax alpha"

Why Your GmbH is the Key to a Tax-Efficient Retirement A few weeks ago, a founder reached out to me on LinkedIn with a clear question: 'How can I save for retirement without paying too much in taxes?' Like many entrepreneurs, he was focused on growing his business but hadn't found a tax-efficient way to secure his financial future. I introduced him to a smart solution that allows GmbH owners to invest directly from their company into a cost-efficient ETF plan—up to €644 per month, fully deductible as a business expense. The big advantage? No taxes during the savings phase. Over time, this could grow to more than €400,000, and while it will be taxed in retirement, his income by then will likely be lower—resulting in significant tax savings. Plus, he keeps the flexibility to withdraw everything at once or opt for lifelong retirement payouts. Today he's relieved to know his retirement is on track—without burdening his business cashflow, the valuation of his company or overpaying taxes now. The key takeaway? As a GmbH owner, you have unique opportunities to build wealth smarter — if you use the right strategies. Have you thought about how your GmbH can support your retirement plans?