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3 Ways to Replace Yourself in Leadership Roles

Posted: 25 Feb 2020 04:30 PM PST

  • Most small business owners like to feel in control, but you need to put your budding business's interests first.
  • Scaling successfully means entrusting teammates to fill roles you once owned.
  • Follow these three steps to let go of some control and help your company grow.

When I founded my business, I oversaw product, strategy, marketing and sales. I was even the janitor. But to keep evolving, the company needed to grow, and I needed to understand how replacing myself in these roles could improve things for me and my business. If every decision and action had to go through me as the leader, we would only grow as much as my workweek allowed.

I would be the bottleneck that kept my company from growing.

I think a lot of leaders are a little addicted to the feeling of control. Perhaps that's why 86% of small business owners admit to working on the weekends, and another 53% said they work during major holidays. But as I've learned to trust others to wear hats for me, my company has grown. My team members have, in turn, grown to fill the roles I've entrusted to them. And it's been fulfilling to see them meet and exceed the goals they set for themselves within their new roles and learn to trust others.

That doesn't mean replacing myself has been easy. I've had reservations many times, and occasionally, I've let go of a role too soon and had to take the reins again. But these are necessary changes in order to scale successfully.

I've learned that humble confidence – taking pride in your skills while acknowledging room for growth – is key. No one is going to do a job exactly how I would do it, but that means that person is bringing something new to the table: a different perspective and mindset. Those are the things that keep a team growing.

Are you ready to let go of some control and start allowing your team or company to scale? Here are the three steps I took.

1. Outsource your mind so you can focus on your strengths. 

As we assembled our company, my co-founder and I began outsourcing our minds without realizing it. I would let him handle the operational and financial stuff to make the day-to-day operations thrive, and he allowed me to handle our forward-thinking strategy. That way, we weren't spreading ourselves too thin, and the company progressed because we were both playing to our strengths.

You can follow the same mindset whether you manage one team or a whole company. Outsource certain responsibilities to others and free yourself to focus on larger tasks.

The first step in doing this is identifying which jobs you do really well. What are your greatest strengths? These are the areas that you should continue to manage and control. Other areas will be better suited to other team members. Setting these clear delineations will give you the ability to focus on doing what you do best and to say "no" with confidence when you're at capacity.

2. Replace your skills. 

As I made moves to replace myself in some roles, I was apprehensive. But I couldn't do the work and lead forever, so I hired designers, a sales rep and strategists. As a designer myself, hiring designers came naturally and I worked alongside them. The first person I chose to actually replace me was in sales.

As he started taking over, I realized that we had very different strategies. He had an edge; I had always been a bit of a yes-man. At first, I was terrified; I kept trying to micromanage his approach. But his work was having a positive impact on the business, and he made sure we were bringing on the right clients.

As my design team grew, I began to step away from day-to-day design. I became a more strategic practitioner. But our team was growing, and I needed to replace myself as a strategist as well. This proved to be the hardest step because it was truly the core offering of my company and much of it came from my personal experience. Over time, we equipped the entire team to think strategically.

It may seem easy to find people to replace you with the same skills, but be careful. Make sure your replacements understand the outcomes needed to be successful but be flexible about how they get there. Your willingness to invest in the next wave of talent will create not only skilled workers but also loyal partners who want what's best for your business.

There were times when I had to step in and either rescue or support each of these roles when mistakes were made, clients were dissatisfied or people just weren't ready to be on their own. But over time, I continued to trust, let go and grant autonomy to these replacements.

The hard part will be the emotional toll of changing how you relate to others. You're going from keeping in touch with each person to giving people autonomy and trusting them to do their jobs. But once you see them excelling, your confidence will be more than rewarded. Be patient. This work takes time, and people will need your support. But when I learned to relinquish control, Crema began to grow. Now, we're a team of 40, led from within by a unique leadership team.

3. Replace yourself with new leaders. 

When hiring new leaders, I didn't just appoint people and leave them to it. I coached them. I gave them space to find solutions while supporting them along the way. The new leaders you empower will need guidance. They will fall short and fail sometimes. So, keep remembering how that feels, and empathize as you support them.

Make sure to step into the awkward conversations of checking in. You don't want to micromanage, but you do need to track their successes, failures, struggles and unique discoveries. Celebrate their approaches and be willing to help them unpack challenges as they find their place in this new role.

Bringing in new leaders can happen in many ways, but we decided to invest internally. We selected individuals from each of our crafts – e.g., design, development, and sales and marketing – to step up and take their expertise and apply it to developing their teams.

These individuals embodied humble confidence, and they were sure that they could help make each of these craft teams flourish. But we knew that they had a lot to learn as leaders. My business partner, our vice president of engineering, and I spent additional time with them, teaching them how to be great coaches.

Over the first year, they earned trust with their teams, worked through hard conversations, and found their own way of enabling growth in their teams. For them to step into these roles, they needed to replace at least part of themselves in their day-to-day responsibilities. They had to learn how to bring up replacements on their client projects. Similar to how I could become the bottleneck preventing company growth, they ran the risk of becoming the bottleneck preventing team progress.

The idea of replacing yourself isn't always an easy one to swallow. You've shaped this company or team into the fully-functioning machine it is today. What if someone else ruins it? But letting go of control has been one of the best leadership moves I've made in my career because it's empowered others to step up and take ownership, too.

4 Tips For A Wildly Successful Website Launch

Posted: 25 Feb 2020 03:45 PM PST

  • Launching a website requires plenty of time and preparation. 
  • When executed properly, a successful launch can result in more sales, traffic and engagement. 
  • Building a coming soon page will help you spread brand awareness and reach potential future customers. 
  • Email marketing has a 4,400% return on investment, making it a great way to get consumers excited about the launch of your website. 
  • Efficient social media and content marketing strategies will help you deliver valuable, actionable content to your audience. 

Are you getting ready to launch a new website? More people are opening online storefronts than ever before, and it's no surprise that everyone wants their website to be a hit. Sadly, most websites fall into disarray in a few short months. 

Planning and creating features designed to help your website pre-launch can help ensure the success of your new business site. The decisions you make leading up to the day your business goes live will determine how customers interact with your brand and affect not only your overall sales but your reputation as well. 

We are going to take a look at four tips you should keep in mind if you plan on launching your site over the next couple of months. These tips may also be helpful if you've already started your website but can't seem to generate any traction. 

1. Create a coming soon page

Coming soon pages are one of the best ways to prepare your website for a successful launch. If you've ever visited a website with a countdown timer declaring the company's big launch, you've visited a coming soon page. 

But why are these simple landing pages so effective at drawing in consumers and keeping them invested in your brand? 

The first rule is simple; people like information. If your coming soon page is nothing but a strange image and a timer, you might draw in a few people because they are curious. However, if you're looking to build potential lifelong business partnerships with people, you need your coming soon page to tell them who you are and how you are going to benefit their lives. 

You can keep it short and sweet. Introduce yourself, thank the visitor for stopping by, and explain the purpose of your company on your coming soon page. 

Your pre-launch site should also feature a countdown timer that lets visitors know how long it will be before your business goes live. Don't forget to ask for their email address near the timer – but more on that later.

2. Build your email list

Email marketing has a 4,400% return on investment, so it's no surprise that business owners want to use this strategy to get their business ready for launch day. If you've managed to create a coming soon page, you should put a subscription box next to the countdown timer so subscribers can get the latest updates on your product line, business launch and more. 

Use this as an opportunity to start building a list of email subscribers. For instance, if you're selling pet supplies, you could ask your new subscribers what kind of pet they own. Now that you know more about their needs, you can create better content and send personalized emails in the future. 

Building an active email list early on will help you secure more leads and see more engagement. Once you understand your customers' preferences, you can start sending them special promotions for launch day that align with their needs. 

If we go back to our previous example, you might want to send people with dogs a promo code that only works on items in your e-commerce storefront with the dog tag. The more you learn about your audience, the better chance you have at resolving their pain points and gaining their trust early. 

3. Start using social media 

Social media is an excellent pre-launch marketing tool. For starters, there are 4.3 billion internet users in the world and 80% of them have multiple social media accounts. If your business has a following, you'll find them on social media. Leading up to the launch of your website, there are various ways you can use social media to keep your audience engaged. 

We suggest you go to popular subtopics within your niche and start engaging with people in the comments section. If you have something valuable to say, you will see consumers come back to your profile and follow you. Building these organic connections is an essential part of landing sales during your official opening day. 

Additionally, social media is a great way to bring everyone together for an event. Some new businesses work with existing influencers as a way to promote their product to a broad audience. The business owner tracks down influencers on platforms like YouTube and offers them free products and cash compensation for their review. The influencer makes a sponsored video that will get shared across all of their social media platforms. Now, fans of that influencer are organically finding your brand, which can lead to future interactions. 

Sometimes, business owners and marketers will ask the influencers to hold contests. This tactic helps improve the influencer's social traction and generates more sales for the business. In most cases, influencers will agree to this deal because of the benefits in their analytics statistics alone. 

The average consumer spends two hours and twenty-two minutes on social media every day. There are plenty of opportunities to engage with these folks before your website goes live. As an added bonus, you'll learn more details about your customer personas when you research your target audience having candid discussions. 

4. Plan content now 

Finally, it's vital that you start thinking about your content marketing strategy ahead of your website's launch. Content is one of the pillar points business owners use to engage and retain their customers. 

If your launch is coming up, make sure you plan content for several months. Even if the content is not all complete, a simple editorial calendar will make you feel better about the tasks you have ahead. 

When your website launches, consumers expect content delivered to their email addresses and your blog regularly. If you're not meeting these needs, consumers will quickly stop engaging with your brand and move on to marketers that deliver personalized experiences. 

Don't forget to create a small library of articles for your blog on your launch day. People want to read content from brands before they make purchases, and not having posts on your website can hurt you. Start planning content now if you want to ensure your success on launch day. 

You should consider diversifying your content to keep everyone interested in what you have to say. Video content can easily end up viral on social media, so you may want to consider creating a YouTube channel where you upload videos every week. Leading up to your website, you can post videos explaining the progress on the site. 

Your coming soon page, email list, and social media marketing strategy all benefit each other if implemented correctly. 

Conclusion

There are plenty of ways to set your website up for success. The tips we mentioned here are general strategies that you can use, regardless of your industry. If you take steps to build up your social media profiles, an email list and your reputation with consumers, you'll have no problem generating sales and traffic on your big day. 

5 Ways to Incorporate Artificial Intelligence in Your Business for Exponential Growth

Posted: 25 Feb 2020 10:38 AM PST

The myth about Artificial Intelligence is one that leans towards a world ruled and run by robots. You know, a world where robots take over jobs and probably eradicate humanity.

But according to Investopedia, Artificial Intelligence refers to the simulation of human intelligence in machines that are programmed to think like humans and mimic their actions. Artificial Intelligence may also apply to any machine that exhibits traits associated with a human mind such as learning and problem-solving.

This ranges from speech recognition to learning, planning, and problem-solving all associated with human traits. Businesses will experience increased efficiency in executing labor-intensive tasks at low-cost rates. Take for instance the chatbot we use for customer support at ClientsValley stems from AI.

By GeeksforGeeks prediction, the AI industry is estimated to reach 118 Billion dollars in 2025. And every business that wants to thrive must come aboard the AI movement.

I don't know the specifics of your business but I'll show you 5 ways to incorporate AI in your business, especially for B2B businesses and service providers.

1. AI powered social media marketing

45% of the world's population which amounts to 3.5 billion people use social media every day, says Statista. There is a multitude of data processed every day and the numbers of people will keep growing at record speed with the advancement in technology.

Business owners have more potential customers to reach out to, which is where AI comes in. It takes the load off the marketers, leaving them to focus on more productive activities like creating better value for customers.

AI has a great impact on social media marketing and lead nurturing. In a survey carried out by Demandbase according to MarketingProfs, 58% of respondents said they will judge the success of AI by its ability to increase revenue. 54% of respondents planned to judge the ability of AI in lead conversion and 59% titled towards seeing the efficiency of AI in closed sales rates.

Using behavioral targeting methods, AI will track persons through dynamic websites, landing pages and programmed ads. It will then begin lead nurturing with an endpoint of increased revenue and attraction of your best clients or customers.

 2. Image recognition

With the aid of artificial intelligence, optical character recognition technology undergoes a complete upgrade that it can handle a couple administrative operations.

The sophistication of AI reaches a point where it can recognize faces and items making it highly consequential to many businesses. This is by increasing the accuracy in the detection of images. 

AI comprises both facial and image recognition abilities which are used to distinguish individuals for security — and object recognition for photo differentiation and analysis.

You can use AI to provide your clients with targeted services according to their preferences.

With the increased flexibility and value of facial recognition, its market is set to hit 7.76 billion dollars globally by 2022. And much of this figure will come from the use of artificial intelligence in online marketing.

3. Use chatbot to optimize customer support

Chatbot is an interactive AI tool that can mimic chats with clients in real time. A chatbot uses natural language through writing or speech on websites or apps.

By using chatbots, efficiency multiplies because clients' issues get resolved faster. They are machines and stay programmed to talk to your clients anytime of the day, even while you're asleep.

This helps you deliver an excellent customer service experience. In addition, chatbots can collect and document data of your clients. So when you need to work with these clients, you have their history.

In almost every business, one of the best places to incorporate a chatbot is in your marketing or lead funnel. The chatbot takes up interaction with anyone that hits your website, seeking to know the reason for visiting.

Their answers determine the approach tailored to convert the visitors. This can happen even if you're out there sipping on a pitcher of lemonade.

For instance, on our ClientsValley Facebook page, we use a Bot to chat with potential clients. The best part is our Bot could be chatting with three different prospects at the same time and when it notices that you're indeed serious, it transfers you to a real human. That's the goodness of AI.

When you incorporate this like we do, you realize that you spend less time on manual labor, profits improve and you work more efficiently.

4. Efficiently enhance personalized experiences

The core function of Artificial Intelligence is the ability to sift through and comprehend an immense amount of data. Its algorithms use tons of data points like on-site interactions, demographics, purchase tendency, previous contacts and more to create tailored client identities.

We look at the suggestion engine of Netflix which shows that it takes the average viewer 90 seconds to choose what to watch before bouncing out. For this, Netflix's AI-enabled suggestion engine offers customized recommendations which caused an increase in customer retention.

This has helped them save to the tune of 1 billion Dollars each year. 

In plain English, AI takes the identities of these clients and aligns them to their preferred services or products. This amplifies user experience, engagements and feedback from customers.

Take for instance, when you watch YouTube videos, the Artificial Intelligence Google incorporates on YouTube recommends videos that users are likely to watch 80% of the time. This improves user experience, gets users to stay longer on the platform and skyrockets YouTubes's generated revenue form ads.

Any business can use AI, not just mammoth companies like Google, Facebook and the likes. Small businesses can incorporate AI in one way or the other in their business.

And as such, a Deloitte survey says on average, 36% of customers showed interest in purchasing personalized services and another 48% will wait for longer if that's what it takes to enjoy a personalized experience. 

5. Recruit smartly

The human resources and payroll sector is one area through which AI can largely affect business operations. Unfortunately, this is a very important department in business that remains neglected by many companies.

Artificial intelligence can help save money while taking over such positions by revamping the whole recruitment process through the following ways.

  • It can help increase the quality of hiring by streamlining the hiring process into qualifying stages. This gives employers more information on prospects which helps for effective assessment.

  • With the open secret known as office politics, the use of AI will lead to a non-partisan, unprejudiced, free and fair hiring decision. It eradicates totally all kinds of biases which come to play when humans hire. This gives every business the opportunity to enjoy only the best of employees hired based on their real potentials.

  •  AI will help for better analytics incorporation. This means that the HR departments of any business can decide which prospects to choose based on their skills. It also helps with assigning them to areas on the job where their skills best fit. Judiciously applied, employees hone their skills which lead to a massive increase in productivity.

  • With AI, you'll get to save more time and money while enjoying maximum precision and accuracy in your business. The human error margin remains vaster than that of Artificial Intelligence. And AI errors are predictable because their behavior is systematically modelled unlike humans. So while AI will never be as creative as humans, they will do the job they're assigned effectively while saving time and cost.

Artificial Intelligence is a timely augmentation to enhance day-to-day activities by making people work smarter. It is not perfect, but it accumulates, assesses and processes information faster than humans, making it a necessary accessory to work alongside humans in business. It can also take the place of repetitive or mundane tasks, boosting productivity. 

As a result, more businesses are leveraging AI to enhance daily business practices, pattern strategic output and eliminate guesswork from decision making. This is only but a few of the many benefits of Artificial Intelligence.

How do you feel about incorporating AI in your business?

Success Stories and Epic Failures of Business Process Outsourcing

Posted: 25 Feb 2020 10:17 AM PST

Outsourcing is the new black. Scroll down the list of top companies on Crunchbase and you'll hardly find two in a row that haven't outsourced a project at least once. Stellar growth demands extra resources and a conscious allocation of money. Business owners should distinguish which functions to keep in-house and which to outsource.

IT holds the edge as the most commonly outsourced function. 74% of companies delegate software development to offshore and nearshore outsourcing providers. Other functions hold promise to flourish next year.

Functions companies outsource the most

 

More and more companies are seeing IT outsourcing as an opportunity to innovate. They're entrusting outsourcers with complex solutions and assigning them the role of service integrators.

It should come as no surprise that both enterprise and mid-sized companies recognize IT outsourcing as one of the main enablers of their business growth — all thanks to the distinctive advantages outsourcing has to offer.

Widely accepted benefits of outsourcing

 

But despite these benefits of outsourcing, not every company achieves success. There are plenty of well-known companies that have failed at outsourcing. So while keeping a positive attitude toward software development outsourcing, decision-makers should stay objective.

Let's take a look at three companies for whom outsourcing led nowhere but the wrong direction, followed by five companies that have made effective use of software development outsourcing.

Three companies that failed at outsourcing

The Boeing Company is an American manufacturer of aircraft and telecommunications equipment for the global aerospace and defense industries. Unfortunately, Boeing's most recent IT outsourcing failure led to many casualties.

On March 10, 2019, a Boeing 737 MAX crashed and took the lives of all 157 passengers on board. One of the most widely discussed reasons for this crash was the malfunction of the flight control software. When designing the new 737 MAX, Boeing tried to reduce costs and accelerate development by any possible means. Boeing relied on an Indian outsourcing provider with a lack of aerospace experience to develop and test life-critical software. With millions of details as well as millions of lines of code, software for the aerospace industry is not a thing you should entrust to a cheap ($9 an hour) and inexperienced supplier. This Boeing outsourcing failure turned into a fatal disaster.

Electronic Data Systems (EDS), an American IT equipment and services company, had not one but several controversial outsourcing contracts before and after their acquisition by HP in 2008. But the US Navy Marine Corps Intranet project is the most notable of their top outsourcing failures.

In 2000, EDS signed a contract to develop internal video, voice, network, desktop, and training systems for US Navy personnel. In their rush to win this lucrative contract, EDS fell short in estimating the initial project scope. Broken communication and lack of a technical background on the client's side heated a fuse in this explosive mixture. The US Navy planned to upgrade 10,000 legacy applications without the appropriate server-side hardware installed on their premises while refusing to transfer Marine Corps data to an external development environment as the project was already running.

After four years of rough cooperation, EDS had written off nearly $500 million in losses for their inconsistency in service delivery.

Failure can overtake anyone, even the greatest outsourcing software development companies. The health service of Queensland, Australia learned this lesson in the hard way after an IBM outsourcing failure.

In December 2007, International Business Machines (IBM), a famous American provider of computer and IT products and services, signed a contract with Queensland Health to develop a payroll application. IBM claimed it was an easy task and committed to finishing the project by mid-2008 for $6 million.

It took several years instead of the proclaimed half a year for Queensland to get their updated payroll app. Moreover, it put a $1.2 billion hole in their budget. Underestimating project terms and costs by 16,000% won IBM not only a spot on our list of bad outsourcing examples but a long-term ban from government projects and legal claims to compensate losses.

Five examples of successful outsourcing

Delegating operational activities to a reliable outsourcing provider empowers internal IT staff to focus on core objectives. Cisco, an American conglomerate delivering telecom technologies and services, successfully outsourced its network monitoring and management operations to Cisco Remote Operations Services (ROS).

Cisco ROS was known for its deep expertise in network monitoring and management, which made them a match made in heaven. Cisco ROS provided CCIE-certified engineers, applied industry best practices, and built infrastructure and libraries. The client received a high-quality service, maintaining control over their network while allocating time to their internal IT staff to focus on enhancing network resilience.

Microsoft also has a successful outsourcing case study under its belt. In 2007, Microsoft outsourced the complete restructuring of its global financial processes and operations to Accenture, signing a seven-year contract worth $185 million.

This project, called the OneFinance initiative, grew after two years of successful engagement into a $330 million contract with an expanded scope. Accenture covered the entire back-office for financial transactions across 95 countries.

The reasons for success lay in carefully planned outsourcing processes, implementation of a comprehensive governance structure, change management, adoption of innovative tools (Controller Workspace and Governance Workspace) for outsourcing management, and a commitment to ongoing transformation.

AdsWizz, a digital ads provider revolutionizing radio and video streaming services, started its ascent from a Belgian startup to an established company headquartered in San Mateo, California, by outsourcing its ads insertion algorithm to a Ukrainian software development provider. After the owners of AdsWizz felt their organization was mature enough to maintain its own in-house engineering capacity, they opened their own development center in Eastern Europe. In 2018, Pandora acquired AdsWizz, recognizing the product as worthy of global attention and justifying the founders' choice to outsource software development at the beginning.

MySQL AB, the actual inventor of the open-source MySQL relational database management system, was a Swedish software company acquired by Sun Microsystems, which in turn became part of the Oracle Corporation.

From the very beginning, MySQL AB relied on outsourcing capacity to scale operations globally. Before it was acquired by Sun, MySQL counted 400 employees across 25 countries, 70% of whom worked remotely. Today, software giants like Facebook, Twitter, YouTube, Amazon, and Google are running MySQL on millions of servers around the world.

Outsourcing for startups may accelerate business growth as well as become a stumbling block, spoiling a unique product culture. GitHub, an American provider of Git hosting services, set the gold standard for how to start a business by contracting narrow and often costly engineering tasks instead of hiring in-house specialists.

In fact, their current CIO Scott Chacon, a well-known Git expert, was first contracted to develop an MVP product that granted instant success to GitHub's founders while keeping their budget lean.

Is outsourcing good or bad? You decide

The ability to learn from others' experience drives more predictable results.

Lessons learned from previous outsourcing experience

 

Looking through these successes and failures in software outsourcing, we can come to a few conclusions about how to succeed:

  • Review estimates for scope, price, and timing not once but twice.
  • Avoid extra-cheap services and companies with lack of industry experience, as they lead to trouble.
  • Design a comprehensive outsourcing governance structure.
  • Simplify your quality control with measured KPIs.
  • Spend on tech expertise, not only on working hours.
  • Implement innovative tools while the project is growing.
  • Ensure you get senior engineers for complex tasks.
  • Ensure transparent communication at all levels.
  • Look for a narrow specialist instead of a jack-of-all-trades.
  • Weigh your project's scope and your supplier's ability to focus on it.

These good and bad outsourcing experiences provide valuable tips to help you successfully launch your next outsourcing project. It would be a pleasure to extend our list of successful outsourcing cases with yours. Don't be shy — share your latest project or idea with us.

The Solopreneur's Guide to Retirement Funds

Posted: 25 Feb 2020 06:00 AM PST

  • Self-employed people who don't have employees have several investment options, including a solo 401(k), IRA, SIMPLE IRA and SEP IRA.
  • Small business owners with employees can set up traditional 401(k) plans or SIMPLE or SEP IRAs.
  • You should consult with a financial advisor or CPA who can help you select a plan that will help you meet your retirement goals. 

Being your own boss is rewarding and can even be fun, but figuring out an efficient way to save for retirement can be challenging. The good news is that there are several savings options that self-employed people can take advantage of. 

Even though solopreneurs can't utilize a traditional 401(k), that shouldn't stop them from investing in other retirement plan options. Understanding IRA and solo 401(k) plans can make a world of difference to your retirement and future. When it comes to preparing for your retirement, the key is understanding your options. 

Can a self-employed person save for retirement on their own?

The answer is yes, and there are several different plan types they can use, such as a solo 401(k) or an IRA. But the real question is, are solopreneurs saving for retirement? According to a Betterment study, almost 40% of the 1,000 entrepreneurs surveyed said they feel unprepared to save enough money to support their retirement, and 19% of them admitted they have nothing saved for retirement. 

Saving on your own is possible, but it's not always as easy as participating in an employer-sponsored retirement plan, and a simple savings account isn't going to cut it. If you stow money away into your bank account, you earn extremely low interest rates, which are unlikely to even keep up with inflation. On top of that, the interest you earn from your savings account is taxed as regular income. This means that if you earn $1,000 in interest and are in a 24% tax bracket, $240 of your interest will go to taxes. If you want to earn a higher return on your savings, you need to put your money in an investment vehicle. 

If you're not worried about saving for retirement because, like 78% of the small business owners polled in a CNBC business succession survey, you plan on selling your business to fund your retirement, make sure you have an accurate idea of what your business will actually sell for. Depending on what your business is worth, this may be a lucrative plan that will generate enough money for you to live off the proceeds. However, if your business isn't valued as high as you think it should be, selling it may not be as profitable as you'd like. Business brokerage firm Bristol Group Inc. reported that just 20% of businesses listed for sale will be purchased and, in most cases, buyers only pay 75% of the seller's asking price. 

Can you have a 401(k) if you are self-employed? 

You may not be able to have a regular 401(k) unless you have employees and decide to sponsor an employee retirement plan, but you can have a solo 401(k). It works a lot like a 401(k) plan, only you are treated as both the employee and employer. 

With a solo 401(k), you can make elective deferrals from your pay of up to $19,500 (as the employee) and then additional contributions (as the employer), for a total contribution of $57,000 in 2020 if you are under 50, or $25,500 if you are over 50, said Nick Strain, senior wealth advisor at Halbert Hargrove. Many brokers offer this plan at little or no fee, depending on the provider. You also have the option to set up a self-employed 401(k) for your spouse if you co-own the company.  

"You can also make a profit-sharing contribution from the business, in which the dollar amount depends on how your business is structured and your pay," Strain told business.com.   

Like traditional 401(k) plans, solo 401(k) plans have both pre- and after-tax versions. A Roth 401(K) allows you to make contributions after your taxes have been deducted. This means your withdrawals are tax-free upon retirement. On the other hand, pretax 401(k) contributions are made with before-tax dollars, so you will be taxed on the money when you withdraw it. 

Do you get a pension if you are self-employed? 

When you think of retirement, you may think of pensions, which are a type of defined-benefit retirement plan. With a pension, your employer pays you a guaranteed monthly amount after you retire – and unlike with 401(k) plans, the value of the account isn't dependent on the performance of your investments. As a self-employed business owner, you do not get a pension. 

Fortunately, in true solopreneur fashion, you can set up a personal defined-benefit plan. This allows a high-income business owner to save more than the $57,000 limit on self-employed 401(k) plan contributions, Strain said.  

The personal defined-benefit plan can help you save $100,000 to $300,000 a year. The amount is determined by your annual income. Through this plan, contributions decrease your annual taxable income and can save you a lot of money on taxes.  

"Once the (self-employed) business owner grows their retirement assets and they're ready to retire, they can purchase an annuity through an insurance company for all or part of their retirement savings to create a pension and guaranteed monthly amounts to receive for life," Strain said.  

But buyer beware: Before you purchase an annuity, you need to speak with a trusted advisor – someone who isn't selling annuities and will not make a commission on it – to find out if this is a good option for you. Annuities are notoriously problematic, and you'll pay much more in fees than with other investment vehicles. 

How much can a self-employed person contribute to an IRA?

There are several kinds of IRAs – individual retirement accounts – that you can use as a solopreneur. Traditional and Roth IRAs are the most popular types, as nearly anyone can use them, but there are also SIMPLE IRAs and SEP IRAs that are only available to small business sole proprietors, explained AJ Smith, vice president of financial education at SmartAsset. 

One benefit of this type of retirement savings account is that you have more time to invest. You can contribute to an IRA for a given year up to April 15 (the tax filing deadline) of the following year. 

Traditional IRA

A traditional IRA is a retirement savings account that has tax advantages. It may minimize your tax bill, because when you make a contribution, it reduces your taxable income for the year. Investments are tax-deferred, meaning you invest pretax dollars and nothing is taxed until you withdraw it. You must wait until you're 59.5 years old to make withdrawals. Otherwise, you must pay a 10% distribution penalty and the money will be taxed as income. One exception to this rule is that you can withdraw up to $10,000 for a home purchase with no penalty. 

You must have taxable income to contribute to a traditional IRA, but there are no longer age restrictions (before Jan. 1, 2020, individuals over the age of 70.5 could not contribute). The contribution limit for 2020 is $6,000. If you're over the age of 50, you can contribute an additional $1,000 for maximum contribution of $7,000. 

Roth IRA

A Roth IRA allows you to invest with after-tax dollars, meaning you have already paid income taxes on the money you contribute to this account. Since the money has already been taxed, it's allowed to grow tax-free, and you won't have to pay any taxes on eligible withdrawals from your account (though you must wait until you're 59.5 years old and your Roth IRA has been open for at least five years). There are no required minimum deductions (RMDs) for Roth IRAs. 

To be eligible to open and contribute to a Roth IRA in 2020, your modified adjusted gross income must be $124,000 or less if you're a single filer and $196,000 if you're married and filing jointly. 

The maximum contribution for a 2020 Roth IRA is $6,000. If you're over the age of 50, you can make a catch-up contribution of $1,000, for a maximum contribution of $7,000. 

SIMPLE IRA

SIMPLE stands for "savings incentive match plan for employees." A SIMPLE IRA plan operates a lot like a regular IRA but has a much higher contribution limit. A sole proprietor can set up a SIMPLE IRA for themselves and contribute to it as both the employer and the employee. 

You must have earned at least $5,000 from your company the previous year to be eligible for a SIMPLE IRA. The contribution limit for a 2020 SIMPLE IRA is $13,500. If you're older than 50, you can make a catch-up contribution up to $3,000, for a maximum contribution of up to $16,500. 

SEP IRA 

A SEP IRA, which stands for "simplified employee pension," is ideal for small business owners because it doesn't require much paperwork or maintenance and allows you to vary the amount you contribute each year. 

Those who are eligible to participate in a SEP IRA plan include sole proprietors and business owners in a partnership or limited liability company like an S corporation or C corporation. In addition, you must be at least 21 years old, have been self-employed for the past three years, and have earned $600 or more in self-employment income. The contribution limit for 2020 is either up to 25% of your salary or up to $57,000 (whichever is less). 

Which retirement plan is specifically designed for self-employed individuals and their employees? 

Business owners with employees have multiple retirement saving options as well, including traditional 401(k) plans, SEP IRAs and SIMPLE IRAs.  

A traditional 401(k) plan is one of the most popular options for businesses with employees because it allows employees to contribute more money, and they can often choose between pretax and Roth contributions.  

Small business owners with employees can also use a SEP IRA. You can open one through an online broker, and it doesn't require annual tax filings with the IRS. You don't have to contribute to employee accounts every year, but if you have multiple participants, you must contribute the same percentage to each of them.  

A SIMPLE IRA can be used by businesses with up to 100 employees and, like a SEP IRA, is easy to maintain, with no annual tax filings. A SIMPLE IRA demands more paperwork than a regular IRA, though, and although contributions are flexible, you must match employee contributions or contribute to employee accounts.  

 

Editor's note: Looking for the right retirement plan for your business? Fill out the below questionnaire to have our vendor partners contact you about your needs. 

 

What is the best retirement plan for self-employed business owners?

There is no one workplace retirement plan that works for all self-employed people, but there are some traits you should look for in a retirement savings plan. It should have generous contribution limits, no or low setup costs or annual fees, manageable paperwork, and flexibility as to when you fund the account. Talk to a few different financial advisors and look into multiple saving platforms to give you an idea of what each company offers and what fees they charge.  

You should plan to work with a financial advisor, certified public accountant or another financial professional. Choose someone who doesn't sell plans and won't make a commission on your retirement account so you can get unbiased, expert advice about which plan is right for you and how much you should be saving for retirement based on your goals and business model. 

Before you speak to a financial professional, figure out how much self-employment income you expect to have, suggested Jeff Klauenberg, owner of Klauenberg Retirement Solutions. You should also know how much you can afford to save, whether you want to defer taxes or pay them now on the money you plan to save, how many years you have left until retirement, and whether you'll hire employees (if you don't already have some). 

If you have employees, you should ask yourself if you want to set up a traditional retirement plan that allows you and your employees to make contributions through payroll. If you do, then a traditional 401(k) plan may be right for you. Consider how much you want to contribute each year, and find out if the plan will save you money on taxes.
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