Entrepreneurship At Any Cost

Wendy D, photographer | BCBusiness
Photographer Wendy D. admits that investing in a retirement plan has been neither a priority nor an option.

Though it’s typical of entrepreneurs to be optimistic, turning a blind eye to retirement planning can land them in hot water later in life—when it’s too late to wind back the clock

It’s not an uncommon entrepreneurial story: buoyed by the excitement and opportunity, the new business owner cleans out her savings to get her venture off the ground. A few years down the road, it’s her RRSP savings that are cashed in to help the business through a rough patch or take it to the next level. Whatever it takes, she’s prepared to compromise her personal finances and leverage her future for the business.

This is Jasmine Marjanovic’s story. In 1999, inspired by the untapped potential of cranberries, she developed a variety of products, found a little retail space in historic Fort Langley and opened the doors of Cranberries, Naturally. The entire venture was funded from her savings and was kept afloat for the first five and a half years by the paycheque she was earning working full-time for a newspaper group.

“I depleted every avenue,” says Marjanovic, unapologetically. “You do what it takes.” That included taking out a second mortgage on her home in order to add wholesale to her business. “It was very difficult,” she says of the decision to cash in the equity in her home. “I didn’t want to do that because that was kind of my little safety thing, but then, you know, you just go along with it all; you just go for it, right? That’s what being an entrepreneur is all about.”

Since expanding her business, she’s recovered some of her home equity, which now sits at 30 per cent. That equity and the future value of her business comprise her entire retirement plan.

Marjanovic is not alone. A 2011 study by the BMO Financial Group found 51 per cent of small-business owners are counting on selling their business to fund their retirement. Ken Davidson, a chartered accountant with BDO in Kelowna, believes that’s a dangerous approach to retirement. “I always tell small businesses, expect that your sale of business is nothing. If it becomes something, that’s fantastic, but don’t plan on the sale of your business for retirement.”

It’s an approach that can be hard to swallow for entrepreneurs. Davidson further explains his logic: “You don’t know if there is ever going to be a buyer at that point in time. You don’t know when you’re going to have to exit. There are so many ifs, ands or buts about that exit strategy.”

Veronica Paauw knows that first-hand. She has been trying to sell the Kimberley City Bakery for the past two and a half years. Selling the business wasn’t as much her retirement plan as it was her husband Bruno Marti’s. He bought the popular ski-town tea house and bakery in 1977. He’d been trying to sell it in order to retire, when he died unexpectedly in 2011 at the age of 59.

Paauw had to take early retirement from her job as a special-education assistant to take over running the business. Since then, her energy has gone into growing the business from the point where it simply provided a comfortable living to being a going concern (and therefore attractive to lenders). “People say to me all the time, ‘Why don’t you just close the doors?’ Well, between insurance and taxes, it would cost me probably a thousand dollars a month, at least, to just have the building sitting here empty,” she says of her ongoing efforts to find a buyer for the business and the historic building it’s housed in. Then there’s the impact it would have on the eight loyal staff members she credits with keeping the business going.

Michael Holdenried, co-owner and vice-president of sales for Synlawn Holdings Canada Ltd., a synthetic-grass distribution and installation company, isn’t counting on the sale of the company for his retirement plan. His plan, which he started three years ago, at the age of 40, has him contributing to an RRSP portfolio, a “rainy day” savings fund (for unexpected family emergencies or future business demands) and an RESP for his three children.

It took him almost 10 years to get this plan in place. When he started the company with three partners in 2001 he invested the bulk of his savings. “I don’t want to say ‘decimated,’ because that is a negative term, but ‘drawn upon,’” is the term he prefers to describe the effect of the initial investment on his personal savings. Once the business was well established (today it has 12 offices across Canada and more than 100 employees), he decided it was time to think beyond investing everything in the business. As a family man, the new diversified plan gives him peace of mind for now and for the future. Should the partners decide to sell the business, the proceeds would be a bonus to Holdenried’s retirement fund.
Diverse assets

Not having all of your eggs in one basket is one of the key tips offered by Odette Morin, a financial planner with You First Financial and Benefits Consultants in Vancouver. “If I told somebody to go out and buy one stock on the stock market they’d say, ‘Whoa, that’s bad, I shouldn’t do that, because that’s not diversifying,’” she says. “And then I ask, ‘So what have you been investing in for the last few years? In one stock—your business.’ You’ve got to diversify.” Both Davidson and Morin point out that diversification is especially important for self-employed business owners since their business is unlikely to hold any value.

Wendy D. of Wendy D Photography (she declines to divulge her last name) understands that despite pouring almost all her profit for the past 10 years back into growing her business, she will never be able to sell it. “As a photographer, I can’t give what I do exactly to someone else. I can teach them the skills but they still won’t be me,” she explains. “It’s Wendy D Photography that you get when you hire me; it’s me.”

This reality is not new to her, but while developing her business, she lived hand-to-mouth. Investing in a retirement plan has been neither a priority nor an option. Today, at 48, she doesn’t own a home or her studio space; she has few liquid assets and aside from a small RRSP (created years ago with an inheritance) she has no savings. “I have known that I need to do that [start saving] but I haven’t been at the point up until now that I would be able to afford to put money away for a future time.” This past spring, she connected with a financial planner and started to invest in a retirement fund and a savings fund.

“My parents are getting older and I may have to take time off at some point to go help out,” she says. “I don’t have vacation pay. I don’t have that sort of thing, so I need to save for that sort of stuff—not only my retirement, but just being away from work for any length of time.” Her mother’s breast-cancer diagnosis, the sudden illness of a neighbour and watching her friend lose a six-year struggle with breast cancer were all motivators in her finally taking action. “If something like that happened to me, I would be totally dependent on the system.”

Morin believes short-term and long-term disability insurance play important roles in retirement planning. “You have no idea how often I see self-employed people without any coverage,” she says. “It’s so scary. People do get sick, and get really sick and for long periods of time.” Morin explains that for the self-employed, the ability to make money is their most important asset, adding, “If you had a machine printing money, you would insure it, wouldn’t you?” She believes that insurance policies protect the retirement fund in a worst-case scenario.

However, most entrepreneurs’ default setting is optimism, and retirement isn’t in their vocabulary. “I honestly don’t think I’ll ever fully retire because I just really enjoy being busy,” says Marjanovic, who is now 50. She credits her European roots for her anti-retirement attitude. She says nobody in Europe retires, they just slow down a little—a trend that Morin notes is becoming more common here.

Wendy D. also expects she’ll be in business well beyond her retirement years. “A lot of artists tend to keep working until they pass away, basically, and the artwork only gets better—all that life experience coming together. So, I plan on just keeping going as long as I can.”

Davidson says he hears this all the time from his clients. “Most entrepreneurs will tell you that they will never retire and so you get to that point where you want to do something else with your life and you have no assets or resources to do it.” Morin also cautions against the “never going to retire” mentality. “What I usually tell people is, ‘Don’t think about retirement necessarily as stopping work, but rather, do I have to work?’” she says.

That’s what Holdenried is looking forward to: having the option to retire if he wants to. It’s going to take a strict savings plan—and vacations have been scaled back—but he’ll be mortgage-free and retirement-ready before his 61st birthday. Just don’t count on those 61 birthday candles extinguishing his entrepreneurial spirit.