SOURCE: BMO Private Bank

October 24, 2013 13:00 ET

BMO Wealth Institute Report: Merging Business and Personal Financial Goals Is Critical to a Successful Retirement

CHICAGO, IL--(Marketwired - Oct 24, 2013) -

  • Almost 90 percent of American business owners feel secure about retirement
  • Only half have a financial plan and just one-quarter have a business succession plan
  • Self-employment among Millennials and Baby Boomers is on the rise

Owners of private businesses often face the formidable challenge of balancing the needs of their business with the needs of their family. According to a new report issued today from the BMO Wealth Institute, those who merge the financial goals of their professional and personal lives will achieve greater success at work and at home, and be better prepared for retirement.

According to the report:

  • Eighty-seven percent of American business owners feel secure about their retirement.
  • Only half (52 percent) of business owners have a financial plan in place and only one-quarter (25 percent) have a formal business succession plan.

"Starting and operating a business is not for everyone, especially since the time and effort involved often infringes on the owner's personal needs and those of his or her family," said Stephen Williams, Vice President, U.S. Financial Planning Strategy, BMO Private Bank. "By matching up their business and personal life cycles, American business owners will be able to develop a thoughtful plan and enjoy greater peace of mind as they head into retirement."

There are approximately 26.8 million small businesses in the United States and the number is rising, making it imperative for the country's new group of business owners to ensure that their business and personal financial plans are aligned.

According to the report, the number of entrepreneurs between 20 and 34 years old -- Millennials -- has more than doubled to 29.4 percent, with 160,000 new start-up businesses a month headed by Millennials in 2011. In addition, more Baby Boomers -- individuals born between 1946 and 1964 -- are opting for self-employment during retirement, with the number of self-employed individuals over the age of 50 increasing from 18.2 percent in 1992 to 24.5 percent in 2010.

"Business plans and financial plans have very different focuses, but for the business owner it is very important that the two plans work together," said Williams. "By doing so, the owner will gain perspective on the unique needs arising at various crossing points."

Two Stages, Multiple Phases

Every business owner's situation is unique, yet invariably their business and personal life cycles are intertwined. The report outlines the six phases of a Business Life Cycle and includes both professional and personal considerations at each junction.

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: This is a time of celebration but still requires constant monitoring to ward of 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 with existing product lines or expanding into new product lines are distinct possibilities -- as may be the need to deep into profits and borrow to fund this. Plan properly 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 or facilities. Continue to save for retirement and establish an estate plan that includes life insurance.

Succession: A clear and well-planned succession plan 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.

"Proactive planning and professional advice must go hand in hand when retirement is part of the equation," said Mr. Williams. "By working with experienced and knowledgeable financial professionals, business owners can gain greater insight into their professional and personal needs and establish a well-rounded approach to retirement planning."

About the BMO Wealth Institute
The BMO Wealth Institute provides insights and strategies around wealth planning and financial decisions. The Institute's team of wealth planning professionals has deep expertise around all aspects of wealth planning including retirement, estate, tax and insurance.

BMO Private Bank is a brand name used in the United States by BMO Harris Bank N.A. Member FDIC. Not all products and services are available in every state and/or location. Estate planning requires legal assistance which BMO Harris Bank N.A. and its affiliates do not provide. Please consult with your legal advisor. 

Contact Information