You've built and are running a successful business as an entrepreneur. But here's a crucial question: are you investing in your financial future beyond your company? While your business is undoubtedly your primary wealth-building engine, putting all your eggs in one basket—no matter how solid the basket is—carries inherent risks.
The time is now
Many business owners postpone personal investing, waiting for the "perfect moment." Women entrepreneurs, in particular, face unique challenges in setting aside money for investments, as studies show they often struggle to secure external funding and tend to pay themselves below-market salaries while building their businesses. But the truth is, the best time to start investing is when your business begins generating consistent profits beyond your immediate operational needs. You don't need to wait until you've reached a specific revenue milestone. You're ready to begin if you can set aside even a small amount regularly.
In summary, you’re ready to start investing if:
- Your business consistently covers its operational costs.
- You have a reliable personal income stream.
- You've established an emergency fund covering 6-12 months of operations.
- Your business debt is manageable and strategic rather than burdensome.
Why diversification matters
Think of your business as a powerful engine driving your wealth creation. However, market fluctuations, industry disruptions, or unexpected events can impact even the most successful businesses.
Investing outside your business serves multiple purposes:
- Creates a safety net independent of your company's performance.
- Provides alternative income streams for retirement.
- Reduces your overall financial risk through diversification.
- Offers opportunities for wealth preservation and growth in different market conditions.
Starting your investment journey
Begin your investment journey with these strategic steps:
Assess your current financial position
In order to effectively begin charting a path towards your goals, it's important to get clarity on where you are today. Take stock of your assets and liabilities, both personally and in regards to your business. It will also be helpful to understand your expected cashflows—including projections for steady and seasonal times—to determine how much may be available to consistently put aside for investing.
Set clear financial goals
Start by defining your investment goals. Are you building a retirement nest egg, creating a legacy for your family, or establishing a fund for future personal or business ventures? Your goals and their associated time frames will help guide your investment strategy.
Understand your risk tolerance
When in pursuit of higher, long-term returns, your investing will involve uncertainty over the shorter-term, including the potential for periods of investment declines. As such, it’s important to reflect on the emotional trade-off between risk and return and to determine what your comfort level is so that it can be reflected in your investment portfolio.
Maximize tax-advantaged accounts
Take full advantage of retirement accounts like Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts (TFSAs). These vehicles offer significant tax benefits and can help you build wealth more efficiently. Consider setting up an Individual Pension Plan (IPP) if you're over 45 and your business is incorporated. An IPP is a defined benefit pension plan for one person.
Build a diversified portfolio
Consider starting with diversified and pooled investment products such as mutual funds and exchange-traded funds (ETFs) that provide broad market exposure that are aligned with your goals and risk tolerance. Many financial institutions offer managed fund solutions that spread risk across multiple asset classes and regions. These funds are typically overseen by professional managers who handle the complex decisions about asset allocation and rebalancing, making them an accessible entry point for busy entrepreneurs who want to maintain focus on their core business.
Consider corporate structure advantages
If you're incorporated, speak to your accountant or lawyer about setting up a holding company to protect and grow assets outside your business. This structure can offer tax advantages and protect your investments from business-related risks.
Explore insurance solutions
Consider incorporating insurance products into your investment strategy. Permanent life insurance policies owned by your corporation can provide protection and a tax-efficient way to access funds during retirement while creating a tax-free benefit for your estate.
Smart risk management
As an entrepreneur, you're no stranger to risk, but your approach to business risk shouldn't necessarily mirror your investment strategy. Start conservatively and adjust for risk as your investment knowledge grows, taking into account your risk tolerance and time frames associated with your goals. Regularly rebalance your portfolio to maintain your target asset allocation and ensure sufficient liquidity to handle personal and business needs. Above all, don't let market volatility drive emotional decisions.
The advantages of professional guidance
While you're an expert at running your business, investing requires different skills and knowledge. Working with financial professionals, including a financial advisor, can help you:
- Determine a suitable investment portfolio that is aligned with your goals and risk tolerance.
- Develop tax-efficient investment strategies.
- Navigate complex financial products and opportunities.
- Maintain an objective perspective during market fluctuations.
- Integrate business and personal financial planning providing peace of mind.
Like in business, success in investing comes from consistent, disciplined action over time. Even modest regular investments can grow significantly through the power of compound returns.
Building wealth outside your business isn't about lacking confidence in your company—it's about creating a robust financial foundation to support your personal and professional goals.
Take the first step today. Book an appointment with an ATB Advisor to review your business and personal finances, set clear investment goals, and begin building your diversified portfolio. Your future self will thank you for the financial security and opportunities you're creating now.
