Ian: Welcome to the Business Coach Podcast, an advice-oriented series for Canadian entrepreneurs. I’m Ian Portsmouth, Editor of PROFIT Magazine and I’ll be your host as we tackle the hot issues and opportunities facing Canada’s small businesses.
We’ve developed this Podcast in cooperation with BMO Bank of Montreal. Over the course of this series, I’ll be drawing on experts in a number of fields including some BMO experts in order to provide the credible information and prescriptions you need to run your small business better.
“Retire rich” is a phrase that arrests the attention of just about anyone. And entrepreneurs are more likely than most Canadians to realize that goal. Still, many business owners will never live the dream for a simple reason, and here it is: As they dedicate their time and energy to running their companies, they neglect to put sufficient thought and effort into retirement planning. So how can you put a plan into action or ensure that your current plan is still feasible? Here to provide some answers is Tina Di Vito, Vice-President and Managing Director of BMO Nesbitt Burns in Toronto. Tina, welcome to the Business Coach.
Tina: Thank you very much Ian. Nice to be here.
Ian: So Tina, entrepreneurs typically have high net worth and they own their own company so why the heck do they need to do any retirement planning at all?
Tina: That’s a good question. Let me start by saying that everyone should take the time to plan their retirement. Now, most people think retirement planning is just about accumulating assets for some time in the future who knows when. But really it is much more than that. So that’s what is equally important for entrepreneurs.
First of all, retirement can last 25 to 30 years or even longer. It’s important to consider how will you be spending your time and who will you be spending it with. And for business owners, what are the other interesting and exciting ventures that they would like to try.
It makes a lot of sense that you take the time to consider your options and all the possibilities that lay ahead. So think of the 20 or 30 years period, this is about as long as it is taking a business owner to build up a company. So they’re going to have just as much time in their next phase of their life. Secondly, business owners can’t have a complete retirement plan without a proper succession plan. You know, who is going to take over the company, when will that happen, will it be phased in over time with the entrepreneur gradually handing over the reign which is becoming more and more common, you know. Will the business be sold in order to extract funds? These are all things that really need to be addressed as part of the retirement plan.
And, you know, maybe, finally, how do you extract funds from that company during retirement? You said in the question there, entrepreneurs, business owners don’t have a successful plan, even though they may behind that worth. Well for many of these business owners, most of their net worth is in the company. And so planning is necessary not only to minimize income taxes but also to determine how and when the money is going to be extracted from their business. So truly, retirement planning is absolutely for everyone.
Ian: Now, succession planning is an important part of retirement planning for an entrepreneur. But they tend to presume that they might not even need a succession plan, that when they feel like they want to sell the business, they’ll sell it and of course that is a fatal mistake for many entrepreneurs. When should they really start thinking about retirement planning and especially considering the succession plan is such a vital part of it?
Tina: Succession planning is a very tricky thing. I’ve had clients who have thought the very same thing you just said that when it’s time, when they feel they had enough, that’s when they’re going to sell their plan and it just didn’t happen to be a very good time to sell the company. There weren’t any buyers, market prices had come down, there were other competing corporations where perhaps 5 or 10 years earlier there weren’t.
So my rule of thumb would be to start about 10 years before (and really when does an individual want to retire? That’s another million dollar question) but 5 to 10 years before that eventual retirement date is a good time to not only start looking within the company for a possible successor but also outside the company because the best person is not always found either in the family or in the company. And then try to get the word out about a potential sale. One of the most difficult things with clients of mine who are entrepreneurs is they have established significant net worth, they’ve got these fantastic companies, all of their assets are tied up in the company and then in their succession plan, it’s the family, the children that take over the business and the entrepreneur is left with handing over the reign to a family member, and really typically not selling it to them.
So in finding a perfect buyer a perfect match, it is very very good to start 5 to 10 years in advance, figure out whether it is a sale that is going to be happening, is it an internal succession plan and getting the wheels in motion because so many entrepreneurs wake up that day and say, well, you know, I’d like to try something different because they don’t really use the “retire” word and there isn’t a market to sell the business or the person who would be most likely the candidate to take over the business is no longer in the business. So like anything else in life, Ian, as soon as you start planning the better it is.
Ian: And if we look at the broader retirement plan, when should that start and what would be some of the first steps an entrepreneur should take?
Tina: One of the things, if I can actually start, when we keep talking about retirement planning, entrepreneurs really are in a unique position, and I have already eluded to that, there’s really no one telling them when to retire, there isn’t any such thing as normal retirement dates, many of them have an emotional connection with their business, especially if they are the founder of the company, you know sometimes, it’s hard to let go. They really view retirement as an option, many of them.
So when is the perfect time, well, from the time you open your front doors to business, I think, is a good time to start planning your retirement. Business owners aren’t typically members of pension plan, defined benefits and company pension plan so they do need to start thinking in advance. Many employees have the luxury of having their employer determined contribution for the pension plan, sometimes managing the funds in the pension plan. Entrepreneurs don’t have that luxury and so it’s even more important for them to start planning early, we know the value of compounding within a registered plan, how, over time, 20 or 30 years, contributions can grow significantly but most entrepreneurs, as I said, don’t really view retirement in their future. They’re absolutely enjoying what they are doing, they love the challenge, they love the risk, retirement is something that they don’t see happening anytime soon.
So what I have done with some of my clients is I have compared retirement planning to a business plan. And when I talk to my clients about, what is your business plan for the next 5-10 years, they can very easily articulate whether there is a new market they would like to enter, any new products they would like to launch, they know where the business is going. So then I turn it over and I say well, let’s talk about your plan, your 2-5- and 10-year plan for getting you to retirement, for getting you to this next phase of life. And I find when I talk in little tidbits like that, it’s much easier for a business owner to understand because we’re talking the same language here. And it’s easier for them to set either savings goals or other types of goals that have to do with their eventual retirement.
Ian: So, clearly, it helps to have a financial advisor like yourself involved in the retirement planning process. Who else might be involved?
Tina: For a business owner, having a financial advisor is a good first step. They also probably need an accountant that is conversant within retirement planning as well as succession planning. It’s very important to start getting these individuals involved, perhaps having what I call mini team meetings. So rather then meeting with the lawyer separately from the accountant and meet again separately from the financial planner, it’s important for entrepreneurs to coordinate team meetings, so that everyone is on the same page, we’re all talking about the same goals, vision and values for the entrepreneur. So that the tax accountant doesn’t do something that’s wonderfully tax efficient but is not in line with what the lawyer has prepared in terms of the state of the succession planning. So, for entrepreneurs, business owners, getting all of the professionals at the table at the same time is very important.
Ian: I know that BMO Bank of Montreal has a retirement planning tool. Do you want to tell us a little bit about that?
Tina: BMO Bank of Montreal has within its various lines of business, tools, resources, expertise available for business owners. In our private bank, we have a business succession team that can help an entrepreneur with their succession planning. In our retail bank branches as well as to BMO Nesbitt Burns as well as the private bank, through all of our levels within BMO Financial Group, business owners can speak to planners, financial planners about accumulating assets for their retirement investment strategies that match the risk tolerance of the entrepreneur and the goals set by the entrepreneur.
We also have a tool available to help clients figure out what their life is going to be like in their next phase, it’s one of the things I first started out saying, it’s important to determine what you will be doing, who you will be spending your time with. We have a tool available we call “Define your path, retiring your way” and it is designed for individuals to work through themselves, they call it a thought book and asks questions about vision, values, goals, milestones, things that individuals would like to be doing and spending their time doing during this next phase, because it isn’t all about the money. There is a 25 to 30 year time period here that can be a very long time period if it isn’t filled with fulfilling activities so this tool helps individuals map out their next phase of their life.
Ian: And briefly, Tina, let’s assume that I or an entrepreneur has done a significant amount of retirement planning, how often do I need to revisit that plan?
Tina: Well, as I say to all my business owners, how often do you revisit your company business plan and it could be, something happens today and tomorrow you’re revisiting your business plan. Exact same approach should be taken when planning your personal future. Typically once a year is a good time to review, sit down, make sure you’re on track, investments have performed according to your expectation, you’re saving enough, things are going well, that should something happen out of the ordinary during the course of the year, then another meeting with your financial planner would be warranted.
Ian: Tina, thanks for sharing these great tips on retirement planning for entrepreneurs.
Tina: It’s been my pleasure Ian. Thank you very much.
Ian: Tina Di Vito is Vice-President and Managing Director of BMO Nesbitt Burns in Toronto.
Thanks for listening to this episode of the Business Coach Podcast. I hope you discovered a few insights that will help you grow your business and that you’ll download other episodes from BMO.com, profitguide.com or iTunes. As always, you can drop us a line at firstname.lastname@example.org. I look forward to hearing from you.
And until next time, I am Ian Portsmouth, Editor of PROFIT Magazine, wishing you continued success.