I often hear remodelers speak of their “exit strategy,” which technically means a plan to cash out of an investment. For many, that is indeed the goal, and most, though not all, think of retirement as the time to cash out. But I prefer the term “endgame,” which connotes more of a long-term planning process. Regardless of your stage in life or the current state of your business, planning now for the endgame will increase your chances of success when the time comes for retirement.

Although the particulars will vary, every remodeling business owner must consider three elements of his or her endgame. Most obvious is the need to provide sufficient financial resources to support yourself and your family after you leave the business. Equally important is to ensure the well-being of your company and its employees and clients. Finally, many a remodeler has so closely identified with his or her business that nothing else can provide fulfillment. Make sure that what you plan to do after retiring is compelling enough to get you out of bed each morning.

For now, we'll focus on providing sufficient financial resources, because without adequate funding, all other plans come undone. Saving money isn't easy for small-business owners. Most fund the startup of their company with credit cards, digging a deep hole that postpones their ability to set money aside for retirement. As the company matures and becomes more profitable, however, the demands of a growing business (and often a growing family) limit how much can be set aside. When the owner eventually decides to develop an aggressive retirement savings plan, it is often based not on careful analysis, but on a guess at some sizeable number that “ought to be enough” and that usually relies on a windfall from the sale of the company.

What Will It Take? Here's a simple rule of thumb: Regardless of your age, you will need approximately 25 times current annual living expenses to pay for retirement. For example, if you currently spend $50,000 per year, you'll need $1,250,000. If you are counting on the sale of your company for most of those living expenses, think again. You would need to run a $5 million company producing at least 8% in net profits (before tax) over three to five years to have any chance of that, and developing a company of that size producing such predictable profits is no easy task.

A better option is a well-designed financial plan developed with professional advice that anticipates retirement funding without taking into account a possible sale. If it turns out that the company provides either lump-sum or annuity value, consider it icing on the cake.

Still not convinced you need to start planning? If you can't answer all of the questions below, point your browser to www.aarp.org and click on the “Money and Work” tab. There you'll find a “retirement calculator” that will help you evaluate your situation. There are no right or wrong answers, so don't fudge your responses. The more accurate the information you provide, the more useful the results will be. —Judith Miller is a construction business consultant and trainer specializing in accounting, finance, and computerization. She recently relocated to Seattle.

Endgame Basics

  • Do you know how much it costs each year for you and your family to live?
  • Do you know the total amount of money you'll need to fund retirement?
  • Do you know how much of that will come from Social Security payments?
  • Do you know how much you need to save each month to make up the difference?
  • Are you saving that much now?
  • Will you have to work part-time after you retire?