BREAKING THE BARRIERS BETWEEN BUSINESS AND PERSONAL WEALTH

For most 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 that their personal and professional interests are very much intertwined.

How you plan to exit the business, for example, will have significant implications on your personal wealth and your family. But because business owners are so intensely focused on running their companies, they sometimes don’t give enough attention to those potential consequences.

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

One component involves maximizing the value of their business from an estate planning perspective. There are untold horror stories of individuals who maintain huge assets but haven’t undertaken the proper planning to optimally transfer those assets. The options include passing the business down to the next generation, transitioning the company to a member of their leadership team, and selling to a third-party buyer. Along with succession matters, it’s about helping business owners think about the value they’ll need to realize in their business so that they are able to continue living the lifestyle they’re accustomed to when they decide to move on.

Even if retirement is a long way off, or if 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. When your Personal Wealth Advisor works in tandem with your Commercial Banking team, they can find ways to either unlock value for business owners or simply help position the company and business owner for opportunities that lie ahead.

A recent example involves a client of ours who wasn’t ready to sell but was interested in adding a bit more personal liquidity. As is often the case, all 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 “risk” without impairing her business. Along with managing her business’ banking needs, we’re also helping to manage her personal funds and have continued to build a relationship with her and her family.

It’s also understanding that economic conditions and legislation are always changing. Your business isn’t static either. You may be bringing in $15 million in revenue when you start a banking relationship. By the time you grow to be a $100 million company, however, you’re dealing with a different set of considerations and that requires a different set of solutions.

That’s why it’s critical to help business owners with proactive 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.

We do our best work when we learn about both the personal and business sides of a client’s profile. BMO provides the value proposition of having experts that can advise on both the Commercial and Private Wealth fronts. Business owners can benefit when they have a banking partner that understands their needs and aspirations. This partnership results in thought generation and the potential to 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.

Kamiar Vossoughi is a Senior Managing Director at BMO Wealth Management. Rob Hallberg is a Managing Director at BMO Commercial Bank.