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small business adviser

When it comes to finances, small-business owners have plenty to worry about, such as keeping the sales funnel filled, funding growth and ensuring there's enough money to cover salaries, expenses and the inevitable tax bite. What's often neglected – in the early years when survival is top of mind and later when hopefully success hits – is personal financial planning.

It's a challenge that marketing company owner Nikki Pett knows all too well. Both she and her husband Simon each operate their own Toronto-based companies and together they have ambitious personal financial and investment goals. It is a list that includes buying a boat in cash this year, saving up for an overseas investment property and ultimately selling their businesses at a fairly young age (April 1, 2029 being the target date). After that, the couple intend to move to St. Lucia and pursue philanthropic activities there.

The Petts ensure that their personal finances are not neglected by holding monthly kitchen table planning sessions. A critical benefit of those meetings, she says, is that they reinforce the notion that there are personal financial goals beyond the day-to-day demands of their respective businesses.

"One trap that I do know that entrepreneurs fall into is skipping the pay yourself first [tenet]," says the 38-year-old. "It is incredibly important because we are tempted to continuously invest in the business. I did it. I was constantly putting all the money back into the business before paying myself.

"The reality is that if you don't pay yourself first you will go freaking insane because you left a 40-hour work week to work 80 hours and not pay yourself."

Putting everything into the business emotionally and financially can be habit forming, says John DeGoey, a portfolio manager with Industrial Alliance Securities in Toronto. "Typically, people who start a small business, the first two to five years, they are making less than their staff while they are getting rolling."

He advises entrepreneurs to "make hay when the sun shines" in terms of retirement. That means when the business becomes successful to ensure that they max out their RRSP and TFSA contribution limits because very few have pensions to rely on in retirement.

"Once you know your business is going to make it, that is when you start siphoning the money out [of the company] and putting it away."

In his experience, business owners achieving success can fall prey to the same temptation that salaried workers experience when they earn raises and promotions: They ratchet up their lifestyle and spend any new earnings. "Studies show that when people start earning more money, they spend it as they just ramp up their lifestyle," he says.

His other advice for small-business owners? Worry about the price you pay for financial products. "A penny saved is a penny earned; that is true in business but that is also true in investing."

As such, he recommends low-cost exchange-traded funds.

Ms. Pett, who has run her business since 2003, has some shorter-term financial objectives. She has recently raised the amount that she saves for retirement to 15 per cent from 10 per cent and she and her husband intend to switch to a low-cost robo adviser for personal investments to save on fees. Currently the couple uses the services of two financial advisers and expect to trim that roster down to one who will concentrate mainly on their businesses.

Having a series of ambitious goals capped by selling their businesses near the end of the next decade has served to motivate and guide their planning process. St. Lucia may seem like an odd end goal for the couple but Ms. Pett says they fell in love with the Caribbean Island years ago and her husband, who owns a cabinetry business, builds houses in that country as a volunteer. Her planned foundation will help would-be entrepreneurs to launch their own businesses.

Financial services companies are aware that the requirements of small-business owners are more complex than those of salaried Canadians and many have set up specialized units or designated advisers to address their needs.

"Entrepreneurs are a very special breed … especially in a small business they are running with their head down, completely enthralled in their business," says Neil McLaughlin, executive vice-president for business financial services with Royal Bank of Canada.

"In a personal situation you don't really have the idea of working capital or financing inventory, or the only building that you are really financing is your home [rather than] a retail store front or warehouse. So there is specialized advice that absolutely small business customers should tap into."

Ms. Pett tapped into specialized advice later than she should have, she admits. Her business faced a cash crunch during the 2008 recession because, surprisingly, it enjoyed a spurt in sales that required unexpected upfront investment. She has some advice for entrepreneurs who may not be as far along the development curve as she and her husband, based on that experience:

• Ask for money upfront. "Don't be shy to ask for deposits upfront from your clients. You have to keep that cash flow going or you will literally go out of business."

• Make friends with a banker. "Reach out and develop a relationship with your branch bank manager as soon as you start. Even when you are a very small business, get that relationship going. It is something that I wish that I had done rather than just try and do it on my own, which equalled financing everything on my personal credit card, which turned into remortgaging my home."