Unite business and personal goals to retire well

Your entrepreneurial clients are constantly balancing their business and family needs, but a new study finds it’s actually better to combine financial priorities.

Merging the two helps achieve greater success at work and at home, and clients will be better prepared for retirement, finds a study by BMO.

According to the report:

Sixty percent of Canadian business owners spend sleepless nights worrying about whether they will be able to retire from their business.
Seventy-nine percent of business owners in Canada have a business plan and 75% have a personal financial plan.
Thirty-nine percent have a business succession plan in place.

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“A business owner’s family situation will progress alongside the business as it moves through the various stages of the business life cycle. By matching up these two areas, Canadian business owners can develop a holistic wealth plan and enjoy greater peace of mind as they progress towards retirement,” said Chris Buttigieg, senior manager, wealth planning strategy at BMO Financial Group.

Business start-ups are on the rise in Canada, making it even more critical for the country’s new group of business owners to ensure that their business and personal financial plans are aligned. Almost half (46%) of Canadian post-secondary students are planning to start a business after graduation, and two-fifths of Canadians are planning to start their own business after they reach age 65 to help fund their retirement, the survey finds.

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The Six Phases of a Business Lifecycle

Start-Up: This is an emotional time for many business owners, since access to investment capital and reinvestment of any revenue earned back into the business may compete with the need for cash flow to support personal and family needs. Incorporating a business and buying insurance are two ways to limit some of the risks of business ownership.

Growth: Owners continue to invest capital and assemble a strong team, with money spent faster than it is taken in. A financial plan that includes long-term needs, including retirement, helps to align the income-generating ability of the business with the needs of the family.

Established: Established businesses should be able to start earning larger profits than can be used both to expand the business and to provide more income for the owner’s personal purposes. However owners should be constantly monitoring threats such as competition or a weak economy. Review and update business plans regularly, reward staff to ensure retention, consider group insurance, and initiate tax-planning measures.

Expansion: Entering new markets may require business owners to draw from profits or to borrow from personal accounts to fund the expansion. The pros and cons of expansion should seriously be considered with a clear planned payback on the investment in a reasonable period of time.

Maturity: Most owners are nearing retirement at this stage and may not want to make needed heavy investments in equipment, facilities or staff to stay competitive. Continue to save for retirement and establish an estate plan that includes life insurance.

Succession: A clear and well-planned exit strategy from the business helps to maximize the value of the business being transferred. Put one in place as early as 10 years before the actual exit to allow family or senior management to grow into their new roles and establish their authority.