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BMO Financial Group

October 19, 2013 07:00 ET

REPEAT-BMO Small Business Week Report: Merging Business and Personal Financial Goals is Key to a Successful Retirement

- Sixty per cent of business owners lose sleep thinking about their retirement

- Fewer than 40 per cent have a business succession plan in place

TORONTO, ONTARIO--(Marketwired - Oct. 19, 2013) - Owners of private businesses often face the daunting 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 in advance of Small Business Week, 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:

  • Sixty per cent of Canadian business owners spend sleepless nights worrying about whether they will be able to retire from their business.
  • More than three-quarters (79 per cent) of business owners in Canada have a business plan and 75 per cent have a personal financial plan.
  • Only 39 per cent have a business succession plan in place.

"Strong financial management is essential to ensure long-term business stability and, ultimately, the growth of personal wealth over a lifetime," said Chris Buttigieg, Senior Manager, Wealth Planning Strategy, BMO Financial Group. "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."

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. According to the report almost half (46 per cent) of Canadian post-secondary students are planning to start a business after graduation, and two-in-five Canadians are planning to start their own business after they reach age 65 to help fund their retirement.

Mr. Buttigieg added, "Whatever your personal life stage, a common methodology for planning is to overlay the personal life cycle on the business' life cycle. This helps the owner gain perspective on the unique needs that arise at various crossing points."

The Six Phases of a Business Lifecycle

Every business owner's situation is unique, yet invariably his or her 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 phase.

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 as 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 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 well as the need 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.

"Preparing for retirement takes proactive planning and personalized advice, especially when it involves the needs and priorities of a business owner," said Mr. Buttigieg. "By working with experienced and knowledgeable financial professionals, business owners can gain greater insight into their professional and personal needs and benefit from a comprehensive 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 professionals have deep expertise around all aspects of wealth planning including retirement, estate, tax and insurance.

To view a copy of the full report, please visit: www.bmo.com/wealthinstitute.

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About BMO Financial Group

Established in 1817 as Bank of Montreal, BMO Financial Group is a highly diversified North American financial services organization. With total assets of $549 billion as at July 31, 2013, and more than 46,000 employees, BMO Financial Group provides a broad range of personal and commercial banking, wealth management and investment banking products and solutions.

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