BREAKING THE BARRIERS BETWEEN BUSINESS AND PERSONAL WEALTH

For many of our clients, their biggest financial asset is their business. Many business owners, however, tend to regard their business and personal finances as a church-and-state situation and are hesitant to mix the two. The fact is, their personal and professional interests are very much intertwined.

For example, how you plan to exit your business will have significant implications on your personal wealth and on your family. Because business owners are so intensely focused on running their companies, they often don’t give the same attention to the potential consequences of a poorly designed wealth strategy.

Clients typically approach us to help with their commercial banking needs, such as managing cash flow, financing new equipment, or providing lines of credit. These are what we would call the “must have requirements.” While BMO is certainly equipped to deliver on these requirements, we are also equally motivated to add value beyond such specific parameters. Given that so much of our clients’ personal wealth is tied up in their businesses, our commercial banking and wealth management teams work together to look for ways to unlock some of that value, offering liquidity options for them to consider.

One component of our coordinated approach involves maximizing the value of our clients’ businesses from an estate planning perspective. There are untold horror stories of individuals who maintain huge levels of assets on their personal balance sheets but haven’t undertaken the proper planning to optimally transfer those assets. Such options may include passing the business down to the next generation, transitioning the company to a member of their leadership team, or selling to a third-party buyer. In addition to working through succession matters, we help business owners think about the value they’ll need to realize in their business so that they can continue living the lifestyle they’re accustomed to when they are ready to move on.

Even if retirement is a long way off, or you’re not considering a sale in the near term, working with a banking partner that understands both the business and personal sides of your finances is beneficial. A recent example involved a client who, as with many owners, wasn’t ready to sell but was interested in adding more to her personal liquidity. As is often the case, her liquidity was tied up in the company. In this situation, we executed what’s called a dividend recapitalization, in which a business assumes new debt and distributes the proceeds to shareholders in the form of a dividend. This provided the owner with substantial liquidity—some of which she used to finance the purchase of a home—without impacting the ownership of the business. She also effectively diversified her personal “risk” without impairing her business. Along with managing her business’ banking needs, we also manage her personal funds and continue to build a relationship with her and her family.

It is critical for us to provide business owners with ongoing, proactive ideas as economic conditions and the legislative environment are always evolving. Businesses are continually evolving as well. For instance, a client’s business may be bringing in $5 million in revenue when you start a banking relationship. By the time this business grows to be a $100 million company, however, you’re dealing with a different set of considerations that require a different set of solutions.

In addition to frequent in-person meetings, we regularly send our clients economic updates and invite them to events that cover the industry and economic topics that could affect both their business and their personal wealth. Constant communication and a consistent flow of information are essential.

The experts at BMO can advise on both the Commercial and Private Wealth fronts. Our expertise can help unlock and maximize value in a client’s business and personal balance sheets. As a result, our clients are well positioned to confront the ever-changing economic landscape.

Katie Florig is a Managing Director at BMO Wealth Management, 520 Green Bay Road, Winnetka. uswealthadvisor.bmo.com/il/winnetka. Bruce Linger is a Managing Director at BMO Commercial Bank.