Somewhat ironically, perhaps, Canadians who have achieved great success in their careers may also be more likely to fail at planning for retirement.
For business owners, the primary obstacle may well be the characteristic that enabled them to succeed – a complete focus on their business. “When we review a business owner’s financial position, often everything they own is in the business,” says Susan Stefura, a certified financial planner and senior consultant with National Bank Financial. “All their time, energy, blood, sweat and tears are invested in the business, to the exclusion of their personal financial lives.”
Retirement planning can also be more complex for entrepreneurs, says Paul MacDonald, the executive director of Canadian Association of Family Enterprise (CAFE). “Our members are often challenged by the question of where to start the process of planning for their retirement and the transition of the potential management and ownership of the business to the next generation.”
For business owners, a failure to plan can result in regrettable and unwanted consequences, including a forced sale of the company. “Most of our members are keen to transition the business to the next generation of their family,” notes Mr. MacDonald. “But time and time again, we hear stories in which the owner dies, and there isn’t a plan – the surviving spouse and the family are left in chaos.”
Conflict over the future of the business and the division of assets can impose lasting damage on relationships between family members, he says. And without an effective succession plan in place, the business itself is at risk. “It may just be that the people left to run the business do not have the passion, drive and vision of the original owner,” he says. “Or the family may be so confounded, in the absence of any planning, that they just sell the business and divide the assets, whatever the current market conditions.”
Organizations such as CAFE and the Business Families Centre, in the Sauder School of Business at the University of British Columbia, provide tools and resources that can help business owners plan for a successful succession or sale. But it’s also essential to address personal financial questions, says Ms. Stefura.
“What often ends up happening, because there hasn’t been retirement planning, is that there isn’t an adequate level of savings outside the business, in RRSPs or tax-free savings accounts (TFSAs). That means that business owners lose out on some tax-saving opportunities,” she explains.
One of the ways that financial planners can help business owners recognize the importance of retirement planning is by preparing a personal net worth statement, says Ms. Stefura. “Every business has a balance sheet of assets and liabilities. A net worth statement is the same idea: what are you worth today?”
Once a net worth statement is prepared, the financial planner does projections to determine how it will change over time, identifying strategies to minimize tax and address any future income gaps.
But too often, business owners don’t seek financial planning advice until it’s time to sell or transition their business to the next generation, she warns. “They may be ready to sell their business, but due to economic conditions, don’t realize as much as they had hoped or thought they would. Or they haven’t taken tax into account.”
Planning can also protect the business from additional costs if the owner dies suddenly, she adds. “Here in Ontario, a business owner can actually have two wills: one for himself or herself and one for the business, assuming it’s an incorporated entity.”
Business owners can reduce the probate fees that would otherwise be payable at their death, which amount to 1.5 per cent of the total value of the estate, she says. “But again, if you’re not doing your personal planning, you’re missing out on that. Depending on the value of your business, it can be huge.”