A Business Owner is invested in a closely held private security that is very illiquid and risky

An owner of a business with sales of $60 - $70 million walked into my office and started the conversation with, “I already have a successful business and real estate holdings, so I may not need to be an investor in the public market. I’m not even sure if I’m the kind of guy who should be an investor.”

My response was, “You are an investor. You are invested in a closely held private security that is very illiquid and risky.” His quick rejoinder was, “I control my business. I can always gain new clients and beat the bushes to grow my business. There’s no risk here.”

There is risk but you just don’t see it. It may take the form of a threat to the entire industry that your business is in, or your business has an environmental disaster, or the risk of fraud inside your business.

Don’t get me wrong. I encourage my clients to keep pushing, to keep growing their closely held company, because it’s going to give them return potential in multiples of what I am able to provide.

But when you reach the point where your company is large enough to support your financial dreams for the rest of your life, you have some decisions to make. Do you keep growing your company and adding money to that pile of potential risk? Or do you say, no, we’re okay. Maybe what I need to do now is focus less on growth, less on the accelerator and more on the navigator: “How do I migrate some assets out of profits, where do I put them, and how do I just solidify some things in my financial life?”


Once your business can support your financial dreams, perhaps you need to focus less on the accelerator and more on the navigator.

­­­­­­­Options for profits from your company

You have several options about how to manage profits from your company: you can expand the business through acquisition, purchase operating real estate, pay it out, spend it or invest it. Once you have decided not to expand your business (which is always a viable choice with your profits) you are left with dollars and decisions.

Owning a liquid portfolio of financial assets provides some features worth considering:

  • Absolute liquidity should you ever need the assets
  • A hands-off investment that allows you to focus on your core competency or take time away from your business
  • A reasonable rate of return in compensation for a reasonable level of risk in a diversified portfolio
  • A portfolio of financial assets can be a very useful tool during succession/transition and estate planning

At what point does it make sense to diversify and take some risk off the table?

My suggestion is that early in your business life you should invest profits back into your business. But as profits grow, it is wise to slowly start diversifying away from your core asset: along with its high expected rate of return it carries high risk. As you are growing your business, a diversified portfolio of public securities provides a cushion in difficult times and a resource for expansion if it is needed. As you age, it becomes even more desirable to further mitigate risk by making sure you have topped up your RRSP’s and tax-free savings account, and by reallocating profits to an investment portfolio.

Another powerful reason for investing in public securities while you are still a business owner is an emotional one. It will help you prepare for the moment when you liquidate your business and find that you have shifted from being a business owner to being a family wealth manager. If you’ve never been an investor until that point, walking into a financial advisor’s office to make decisions about how to manage the money that represents everything you’ve built could be intimidating (if not downright terrifying). This transition is much easier if you have slowly built the confidence that comes with knowledge of how the markets work.


Daryn Form is a Senior Financial Advisor with Assante Capital Management Ltd. providing wealth management services to principals of family-owned and privately held companies. Assante Capital Management Ltd. is a member of the Canadian Investor Protection Fund and is registered with the Investment Industry Regulatory Organization of CanadaThe information mentioned in this article is for general information only. Please contact him 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 Capital Management Ltd.  Rates are not guaranteed and are subject to change at any time without notice.