March/April 2005: by Jim Nellis

Let your business go to work for you

So, you've sold your business, now what? You are faced with a new problem; you've never had such a large balance in your chequing account before or the luxury of liquidity. Business owners are forced to make many difficult decisions as they prepare to transition themselves into the next stage of their lives.

One of the most important decisions will be how to handle the proceeds from the sale of your business. Almost exclusively, the income generated from the business is the largest and most critical asset to protect for families as they move into retirement.

Families will depend on the proceeds received from the sale along with other savings to replace the income that was previously generated from the business. This can be a difficult transition for business owners to get comfortable with. A shift has occurred, you're now in the business of liquid investment capital and essentially you have less control over the growth of this asset than you did in your original business, where your efforts could directly affect the outcome of your rate of return.

All is not lost, though. The business of investing can be sufficiently profitable, less risky, and require less of your time. You will simply need to refocus your efforts in different areas to ensure the results you require.

There are literally thousands of different investment choices to pick from in today's market place. That number seems overwhelming to most people (present company included). The decision becomes easier when you break it down. There is a priority list that will help you focus. Generally speaking we can assume that our objectives for our new "cash company" are to protect capital, provide income, and to realize an acceptable rate of return.

The initial step in building the portfolio is to examine the process and design, and to understand why it is important. Process and design are critical to the success of your new investment company.

Let's look at the "pillars," if you will, of sound portfolio design:

1. Individual customization. Pick what's right for you; an individually customized portfolio that is right for you is essential.

2. Draft an investment policy statement. This document acts as a written road map and outlines how the assets will be invested. It ensures your management team fully understands your goals and objectives.

3. Asset class diversification. Simple; don't put all your eggs in one basket.

4. Automatic rebalancing. It is critical that the asset classes are rebalanced between each other regularly for the portfolio to remain efficient.

5. Multi-manager approach. Outsource the management of each asset class to experts in the various areas.

6. Tax efficiency. Allocating assets efficiently between registered and non-registered accounts will save you money that would otherwise go to tax.

7. Comprehensive portfolio reporting. Very rarely do investors ever know how much money they invested, what their rate of return is, or what the cost is. Good reporting should answer those questions and be easy for you to understand.

8. Full fee disclosure. The good news is that the net cost to you can be less than a traditional mutual fund portfolio. It is important to realize that cost only becomes an issue once you have the pillars of good design in place.

A majority of business owners spend most of their lives working in, at, or on their business. A proper investment strategy will ensure that your business will return the favour by going to work for you.

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About the author
Jim Nellis, B.Comm, is a Financial Planning Advisor with Assante Financial Management Ltd. He can be reached at 1-877-837-3377 or 306-665-3377, or Click to email Jim Nellis.

Disclaimer
Please contact a professional advisor to discuss your particular circumstances prior to acting on the information above. The opinions expressed are those of the author and not necessarily those of Assante Financial Management Ltd.

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