There's a conversation I have more often than you might expect.
It usually starts the same way. I'll be talking with a small business owner in the trades; someone who has spent 30 years building something real. They've worked hard, run a tight operation, and made good money. And by most measures, they've done everything right.
Then we sit down to talk about retirement, and the picture that emerges is not the one they expected.
The business, it turns out, isn't worth what they thought because most of their enterprise value is closely connected to their day to day involvement. The retirement savings are thinner than they realized. And the money they do have saved is sitting in accounts that are going to create a tax problem when they retire.
None of this happened because they made bad decisions. It happened because the decisions they made during their working years - smart decisions, were never coordinated with what retirement would actually require.
The Business Valuation Problem
Most trade business owners carry a number in their head. It's roughly what they think the business is worth, and it's a big part of how they've thought about retirement funding. Sell the business, pocket the proceeds, and the rest takes care of itself.
The problem is that number is usually wrong, and not by a little.
A business that generates strong revenue and pays its owner well can still have surprisingly low enterprise value if that value is too tightly tied to the owner. And in trade businesses, it almost always is.
When you are the business - when customers call your cell phone, when your crew looks to you to solve the hard problems, when your reputation is the reason people hire you in the first place, a buyer is purchasing revenue that may not survive the transition. Lenders and buyers know this. And they price it accordingly.
This doesn't mean the business has no value. It means the number in your head is probably optimistic, and retirement plans built on an optimistic number are fragile.
The owners I sit with who navigate this best are the ones who figured this out early enough to build retirement assets alongside the business rather than instead of it.
The Tax Minimization Trap
The story gets more complicated:
Most small business owners are aggressive about minimizing taxes during their working years. That's not criticism, it's rational. When you're grinding through a season, managing payroll, and watching margin disappear into equipment and insurance, every dollar you can keep is a dollar worth keeping.
So they maximize pre-tax retirement contributions. They accelerate equipment purchases. They run legitimate deductions hard. And year after year, they reduce their taxable income as much as possible.
The problem is that strategy, applied consistently over 30 years, creates two problems that don't show up until retirement.
The first is the tax bill waiting on the other side.
When nearly all of your retirement savings sit in pre-tax accounts like traditional IRAs, SEP IRAs and 401(k)s every dollar you withdraw in retirement is ordinary income. There are no long-term capital gains rates, no tax-free buckets, no flexibility. The IRS has a claim on all of it, and eventually they'll collect it whether you're ready or not. Required Minimum Distributions begin at 73, and at that point you're no longer choosing how much to take. You're taking what the formula says you have to.
For someone who spent a career paying as little tax as possible, discovering that retirement comes with a mandatory, fully-taxable income stream is a jarring introduction to a problem that could have been managed differently.
The second problem is less obvious but equally significant.
All of those years of reduced taxable income also mean reduced Social Security earnings history. Social Security benefits are calculated based on what you reported as income over your working career. When you've spent decades minimizing that number, the benefit you receive reflects it. For some owners, the gap between what they expected from Social Security and what they actually receive is meaningful. Sometimes several hundred dollars per month, compounded over a retirement that could last 25 years or more.
These two consequences, the pre-tax tax bill and the reduced Social Security benefit, are the direct result of a strategy that made complete sense in the moment. That's what makes them so frustrating to unpack.
The Retirement Plan You Probably Outgrew
There's one more piece of this that comes up regularly.
Many small business owners who do offer retirement plans to their employees are running plans that made sense when they set them up years ago but haven't kept pace with what's available today. A SIMPLE IRA or SEP IRA that was set up in 2005 may be doing the job technically while leaving significant contribution opportunities and tax planning flexibility on the table.
The retirement plan landscape for small business owners has improved considerably. 401(k)s - traditional or Solo - and defined benefit plans each offer different combinations of contribution limits, flexibility, and tax treatment depending on your income structure, number of employees, and how close you are to retirement. A plan that was right for you at 45 may not be the right tool at 58.
If you haven't had a thorough review of your business retirement plan in the last few years, that review is probably overdue.
The Morning After the Sale
The last piece is something that doesn't show up on a spreadsheet.
For most small business owners, the business isn't just an income source. It's an identity. It's the thing you built, the thing you're known for, the thing that gives your days structure and your work meaning. The truck with your name on it isn't just a vehicle, it's a statement about who you are.
When that goes away, something has to replace it.
I've sat with owners who sold their business, closed the chapter cleanly, and moved into retirement with purpose and energy. And I've sat with owners who made it about three months before the silence became unbearable.
The difference usually wasn't financial. It was whether they had answered the question that the financial plan can't answer on its own: what does a good day look like now?
That question deserves as much thought as the valuation, the tax strategy, and the Social Security timing. Sometimes more.
What Good Planning Looks Like for a Small Business Owner
If you own a business and retirement is somewhere on the horizon, there's a framework I use when working through this with clients.
Start with a realistic business valuation. Not the number in your head, but an honest assessment of what a buyer would actually pay, and what the business looks like without you in it. That number becomes the foundation for everything else.
Build retirement assets outside the business. The business is one asset. But it shouldn't be the only one. Consistent contributions to a well-structured retirement plan, ideally with some balance between pre-tax and Roth dollars, create options that a single-asset retirement plan doesn't.
Revisit the tax strategy with retirement in mind. Minimizing taxes during your working years is reasonable. But there's a cost to doing it without any regard for what the tax picture looks like on the other side. A small amount of intentional Roth contribution or conversion each year can meaningfully reduce the tax burden that accumulates in a fully pre-tax portfolio.
Review your retirement plan. If you haven't looked at the structure of your business retirement plan recently, it's worth the conversation. The contribution limits and flexibility available today are significantly better than what most legacy plans were built around.
Start thinking about what comes next — personally, not just financially. The business exit is a transition, not just a transaction. The owners who handle it best are the ones who gave some thought to the life they were building toward, not just the assets they were building up.
The business owners I work with are some of the most capable, hardworking people I know. They've built real things, employed real people, and created real value over the course of their careers.
What they often haven't done is applied that same intentionality to the back half of the plan.
It's not too late to start. But the window for getting ahead of these problems rather than solving them under pressure is narrower than most people realize.
If any of this feels familiar, that's probably worth a conversation.
Jeff Mahoney | jeff@informfp.com | 612-758-9152 inFORM Financial Planning | www.informfp.com