Small biz owners: grow your personal portfolio, in addition to your business

- TD Canada Trust provides tips on retirement investment strategies for small business owners -

TORONTO, Oct. 16, 2012 /CNW/ - Cash flow, payroll, overhead - managing the financials of a successful small business is no small feat. Crunching the numbers, some entrepreneurs may be tempted to defer their personal savings and investments in favour of relying on the equity in their business to fund their retirement.

A poll by TD found that while the majority of Canadian small business owners polled who plan to sell their business (66%) will use the proceeds to fund part of their retirement, 14% admit they are counting on the sale of their business to fund their entire retirement.

John Tracy, a senior vice president at TD Canada Trust, cautions small business owners against putting all of their retirement nest eggs in one basket. He says relying on the equity of a small business to fund 100% of a retirement strategy may be too risky.

"While the equity in your business could potentially be a significant source of retirement income, it's equally important to make regular contributions to build your personal investment portfolio, both as a safety net and to maximize retirement income," he says. "Entrepreneurs should consider balancing the high risk investment strategy of a small business with other investment products, like mutual funds or GICs."

Tracy offers his tips on how to plan for a comfortable retirement and grow a small business simultaneously:

1. Open an RSP and automate your savings
Without a guaranteed pension, an RSP is one of the best saving and investment vehicles available today for small business owners, so you should take advantage of the benefits of tax-deferred and compound growth that an RSP offers. The majority of small business owners identify cash flow as the most significant barrier to the success of their business, so it can be daunting to find a chunk of money to contribute to your retirement savings each year. Start small and set up a pre-authorized transfer that automatically transfers a set amount at regular intervals into your RSP.

2. Use income-splitting strategies to boost your family's retirement savings
Consider income-splitting strategies and invest your tax savings into your RSP. For example, if you hire your spouse, you can effectively split income among family members. This strategy allows you to shift income to family members in a lower tax bracket, reducing your family's overall tax bill. Alternatively, consider having a lower-income family member make the RSP contribution. Choose a family member whose taxable income is low, but is expected to increase in the future. Then, defer deducting it until the income increases, netting a larger tax benefit.

3. Consider issuing dividends to fund your RSP contribution
Unlike money paid as salary, bonus or commissions, dividends are often paid at a lower tax rate, allowing for a greater year-end RSP contribution. Any tax refund realized as a result of the RSP contribution can be funneled back into investments.

4. Consider a Tax-Free Savings Account (TFSA)
Small business owners who draw little income from the business should consider a TFSA. There's no tax payable on any investment income or growth. It's also flexible! Depending on the type of investment, funds can be withdrawn anytime.

5. Get expert guidance
Entrepreneurs sometimes have trouble outsourcing, but many successful small business owners surround themselves with experts to navigate through the challenges of owning a business. A small business advisor at your bank can help you develop a financial plan to build a thriving business today and your financial advisor can help you develop an investment plan for a comfortable retirement in the years ahead. TD Canada Trust has advisors in branches across Canada, many of which are open evenings and weekends, to help small business owners make the most of their time.

About TD Canada Trust
TD Canada Trust offers personal and business banking to more than 11.5 million customers. We provide a wide range of products and services from chequing and savings accounts, to credit cards, mortgages and business banking, to credit protection and travel medical insurance, as well as advice on managing everyday finances. TD Canada Trust makes banking comfortable with award-winning service and convenience through 24/7 mobile, internet, telephone and ATM banking, as well as in over 1,100 branches, with convenient hours to serve customers better. For more information, please visit: www.tdcanadatrust.com. TD Canada Trust is the Canadian retail bank of TD Bank Group, the sixth largest bank in North America.

*From October 3 - 6, 2011, an online survey was conducted among a sample of 609 Canadian small-business owners who are Angus Reid Forum panel members. The margin of error on the full base — which measures sampling variability — is +/- 3.91%. Discrepancies in or between totals are due to rounding.

SOURCE: TD Canada Trust