It’s crucial small business owners don’t put all their eggs in one basket when planning for retirement, says certified financial planner Tina Tehranchian.
“The problem is … a business, no matter how good it looks today, could be floundering in the future,” said Tehranchian who works for Assante Capital Management and is a member of Advocis.
That’s why it’s dangerous to rely solely on the business as a retirement savings plan, she said.
Diversification is key.
Farah Perelmuter, who co-owns Speakers’ Spotlight with her husband Martin Perelmuter, said the couple built their motivational speaking business slowly, safely and in a way they could afford.
They’ve also planned for retirement, maximizing their RRSPs in hopes they won’t have to rely on their business for income upon retirement.
“Hopefully it will just keep growing and we will let our kids one day decide what to do with it,” she said.
Shifts in the market, economic conditions and changes in the industry can all negatively affect the growth of a business.
Tehranchian says investing in different asset classes, such as real estate, stocks, RRSPs and even guaranteed instruments like bonds or GICs, is the best way to go.
Succession planning can also be an issue for business owners relying on their company as a retirement nest egg.
In a recent survey conducted by the Canadian Federation of Independent Businesses, only 10 per cent of business owners surveyed said they had a formal succession plan.
This is problematic, Tehranchian said, because the owner may want to pass the company down to their children or a key employee, but what if the successors are not capable of managing the business?
“It’s a big issue,” she said.
Most small business owners are baby boomers planning to retire within the next 10 years, and many are relying on the business as their main source of income, she said.
“The business owner needs to talk to a certified financial planner, to their accountant, to their lawyer, and put the right plans and structures in place … way ahead of time,” she said.