According to Industry Canada, businesses with fewer than 50 employees contribute about 26 per cent to Canada's GDP and employ almost half of our labour force. Ironically, evidence also shows while small business operators contribute much to our nation's collective wealth, too many of them neglect their personal financial well-being.
"Business owners do so much planning in their business that they often overlook planning on the personal side," says Lee Anne Davies, head, Retirement Strategies, RBC. "Their investing, too, goes into their business."
That leaves a number of potential gaps unaddressed, she says. "It is important to develop personal planning knowledge before you move into retirement, and - over time - to build a trusted group of advisors."
The risks associated with not doing so are many and varied.
For example, says Ms. Davies, business owners don't want to find themselves without trusted advisors who can help them protect and invest potentially large proceeds that can result from the sale of a business.
Expert advice can also be crucial to helping business owners prepare for the impact of economic conditions on the future value of their business.
"One of the reasons to have personal investments is to offset any shortfall in the value of the business at the time you sell it," says Ms. Davies, noting that it is essential to have the business professionally evaluated as part of the planning process.
Engaging in personal planning earlier rather than later allows business owners to develop relationships with advisors over time, initially investing smaller amounts of money and working up to larger sums before finally investing the proceeds of the business sale, says Ms. Davies.
The Tax-Free Savings Account introduced in 2009 provides a great opportunity for business owners who have neglected their personal planning to get started, she says. "The TFSA offers much more flexibility, so business owners can use the TFSA as an emergency fund for their business without creating tax consequences on the personal side."
Identifying the right personal financial advisor is an important first step in the process. "A financial planner can offer the business owner a big-picture perspective," says Tamara Smith, vice president, Marketing and Consumer Affairs, Financial Planning Standards Council.
She notes many business owners employ accountants, lawyers and other professional service providers in areas in which they lack specific expertise. "Financial planners are an important part of that advisory team. They're able to offer advice and information on how take that large asset - the business - and go beyond, to fulfill all of the individual's financial goals," she says.
When searching for the right advisor, says Ms. Smith, consider proven competence as well as breadth and depth of technical knowledge.
"Business owners should look for someone who has competence and experience dealing with clients who own small businesses. Find out how long they been in business, and look for respected credentials, such as the CFP, or Certified Financial Planner designation."
An ability to communicate effectively is also vital.
"Business owners have unique needs, so it's important that there is someone they can trust and who is accessible. You want someone who is available when you need to speak to them. Be clear on the level of communication you're expecting, and look for someone you have a rapport with," says Ms. Smith.
A potential additional benefit of working with a financial advisor to achieve personal goals is that he or she might also lend expertise on the business side.
"Tax planning, succession planning, benefits and insurance - these are complex issues, and a competent financial planner can provide informed advice about how to deal with them most effectively," says Ms. Smith.
Financial planning requires integration, she says.
"It's about ensuring that business decisions, investment planning, risk and debt management and tax planning work together to maximize the business owner's total financial well-being. The sooner you can look at the various alternatives, the more options you have available to you. As your time horizon narrows, so might your options."
For business owners, says Ms. Davies, personal planning is a critical element of diversifying risk and reward. By taking a balanced, integrated approach to their future goals, "They're not only investing in their business, but in themselves, their family and their future."
Succession planning, a final frontier
Despite the fact that demographic trends are leading to an unprecedented wave of succession over the next 15 years, astonishingly the vast majority of Canadian small business owners do not have any kind of succession plan, says Catherine Swift, CEO of the Canadian Federation of Independent Business (CFIB).
According to CFIB surveys, most business owners who have a succession plan indicate their plan is 'informal.' In other words, many of those who have a successor in mind may not even have spoken to that person about it.
The risk is those intended successors might be wondering about their future, and even considering another job. "It is essential to share your plans," says Ms. Swift.
CFIB strongly recommends a written succession plan and has prepared a guide in conjunction with the Canadian Association of Chartered Accountants to support the process.
In addition, while it's important to prepare for a planned succession, planning for the unexpected is also essential, she says. "What happens to your business if something happens to you tomorrow?"
For more information, visit cfib.ca.