Business

Many small business owners not planning for retirement

(Special) – Small businesses may be the backbone of the Canadian economy but many owners of those businesses are putting their retirements at risk by not planning early and well enough, a new poll suggests.

The poll by IPC Private Wealth of Investment Planning Council revealed that 42 per cent of Canadian small business owners are unsure about their future and their plans for retirement. More than a third of them don’t plan to give up ownership until they are not well enough to manage their business, and 21 per cent are not sure if they have enough money to retire and if their business will attract potential buyers.

The Business Development Bank of Canada estimates that almost 60 per cent of Canada’s small and medium-sized business owners are 60 years of age and older. Four out of ten are likely to leave their businesses within the next five years.

Why are these entrepreneurs who play such an important role in the Canadian economy and the lives of the people who work for them not looking after their own retirements?

“The fact of the matter is that these people are so engrossed and committed to their businesses and what they are doing they find it hard to find the time and get the help they need to prepare for their own retirement,” Dan Nolan, an investment adviser with IPC Securities Corp. in Ottawa, said in an interview. “Most of their wealth and life’s work is tied up in the business and they find it difficult to separate themselves and their retirement from it.”

The IPC poll found that 42 per cent of owners would prefer to sell their business, 31 per cent would prefer to pass it on to their heirs and family members, and 27 per cent would like to shut their business down. Forty-two per cent have no plans to seek the help of a financial adviser on business succession planning and only 36 per cent reported that their families were aware of their succession plans.

The biggest fear among small business owners is that their heirs and family won’t want to take over the business. This is particularly true among high net worth entrepreneurs with more than $1 million in investable assets, with 34 per cent saying they worry that their heirs are not interested, slightly higher than the 28 per cent national average of business owners who share the same sentiment.

Owners need first to decide what they want to do in retirement. If they want to hand it over to family, they need to openly discuss this with family members to understand their wishes and see who may be interested in and have the right qualifications and skills to take over the business.

“Studies have shown that 70 per cent of small businesses do not survive to a second generation and 90 per cent do not make it to the third generation,” Nolan says. “It’s important to start working on this process at least five years or more in advance.”

Nolan believes owners always should develop alternate sources of retirement income outside the business through vehicles such as the Registered Retirement Savings Plan, Tax-Free Savings Account, and Independent Pension Plan.

“The valuation of the business is key when it is being transferred or sold,” he says. “Removing yourself from the day-to-day operations and getting a professional manager well in advance is a good idea because the value of the business rises if it doesn’t rely just on you.”

Nolan advises owners to get a coach or adviser to help them with planning the succession of the business and their retirement.

“It all revolves around risk,” Nolan says. “Most small business owners have most of their net worth in the business. If it declines your retirement could be at risk. That’s why it’s important to create alternative sources of income.”

Talbot Boggs is a Toronto-based business communications professional who has worked with national news organizations, magazines and corporations in the finance, retail, manufacturing and other industrial sectors.

Talbot Boggs , The Canadian Press