Canada is a country of entrepreneurs. Small- and mid-sized businesses account for more than 99 per cent all companies in the country. For these enterprising owners, financial planning involves all aspects of their lives.
“The reality is their personal and business finances are so intertwined that you can’t – and shouldn’t – look at one without the other,” says Bob Sewell, president and chief executive of Bellwether Investment Inc. in Oakville, Ont. “Yet, it can be a challenge to help them see the bigger financial picture.”
As such, financial advisors have an opportunity to provide clients who are business owners a holistic view of their finances and introduce comprehensive financial planning strategies. But what can get in the way, and what can advisors do about it?
Start with conflicting priorities. Business owners might be so focused on growing their companies that they make decisions that are good for their firms but not so great for their personal finances.
For example, some business owners might put every dollar they have into their business at the expense of providing a decent income for themselves and their families. Others might pull out surplus cash from the business to pay down debt, but incur higher taxes in the process.
Another issue is that many entrepreneurs have a blind spot around the financial risks from their business, Mr. Sewell notes.
“These risks are often not understood or recognized. The business owners feel they have an element of control over the business, and therefore can manage and minimize the risks,” he says.
Yet, independent factors ranging from the price of oil to trade wars can have a huge impact on a business’s performance. That can threaten the largest portion of a business owner’s retirement nest egg.
A third complicating factor is the number of professionals involved in the client’s life. Corporate and personal accountants, lawyers, bookkeepers, estate planners, business strategists and more all play important roles. But they might be looking at their piece of the financial puzzle in isolation.
“By and large, a lot of the professionals advising business owners are just good in their silos,” says Jason Heath, an advice- and fee-only certified financial planner at Objective Financial Partners Inc. in Toronto.
That’s not a critique of anyone’s skills, but it can lead to a fragmented view of personal and business finances, Mr. Heath says.
advisors can help by ensuring integration. Those trained as generalists can start by ensuring their advice takes the various aspects of a client’s overall financial health into account.
What really adds value for entrepreneur clients is an advisor’s ability to collaborate with other disciplines, Mr. Heath says. That can mean working with existing members of the client’s team of professionals or pro-actively assembling a network as needed.
That’s not always easy, he says. Some professionals have little interest in being part of a team while others might have opinions that are very different from his, given their vantage point. Ultimately, it’s about serving the client’s best interests.
That’s why advisors have to reinforce with clients the need to get the most thorough advice from all perspectives.
Graham Roy, principal and financial advisor at Affinity Financial Group Inc. in Halifax, says advisors also have a role in educating other professionals like accountants and lawyers on the latest financial issues that could affect their mutual clients.
“To help ensure this circle of influence does stay up-to-date on financial planning trends and what we’re doing for our clients, we continuously send them articles and thought pieces about pertinent trends in that space,” Mr. Roy says.
When it comes to pulling together business-owner clients’ financial plans, Mr. Sewell goes through a three-step process that starts with a broad balance sheet of their personal and business assets and liabilities.
As a second step, he and his firm’s advisors typically work with their clients’ lawyers and accountants to develop long-term plans. That includes elements such as a management plan (does the business have the talent in place to allow the owner to move towards an exit?); a financial plan that looks at how the business can get monetized through a buyout; a tax plan that explores opportunities to minimize liabilities and maximize gains; and a contingency plan for an unexpected death or illness.
“Once you have mapped out these, you can look at the personal side of the overall financial plan,” Mr. Sewell says.
In this next stage, he works with clients to figure out how to start diversifying their wealth away from the business.
“That can encompass things like how they're paying themselves and how they can maximize wealth accumulation outside the business to best position themselves for the future,” Mr. Sewell says.
“So, this is where we would look at what they should be investing their money in, and potentially even how they might be able to use personal life insurance as part of an overall strategy,” he adds.
Tying plans together can be a complex, lengthy and essential process. Business stages and life stages have their own nuances and every client’s needs are different. But the objective is the same: Create a big-picture plan that balances business-owner clients’ personal financial health with their business goals, Mr. Sewell says.