Are all your eggs in one basket?

The following is an excerpt of a conversation with John Rothschild, CARA Operations, Ltd. published by the Ivey Pierre L. Morrissette Institute for Entrepreneurship, written by Jacoline Loewen.

With the Covid situation facing every business founder, John Rothschild’s humble, quiet style of leadership stands out during past black swan events of 2008 and the tech crash in the 2000s, as well as his deep concern for his employees. But as an accountant, John Rothschild understands the financial facts that drive the long term success for his restaurant business, as well as his own personal wealth.

John Rothschild, Ivey MBA ’73, has been at the helm of Prime Restaurant Holdings Inc. since 1994, overseeing the rise of restaurant brands like East Side Mario’s, Casey’s and Bier Markt. Rothschild sat down for a discussion with David Simpson, Executive Director at Ivey's Pierre L. Morrissette Institute for Entrepreneurship and Director of the Business Families Centre, at UBS Speakers Series, UBS Bank (Canada). Below is a brief excerpt of the conversation around wealth management:

David Simpson: Having lived through the tough downside experiences of the tech bust, 9/11 and the 2008 crash, did you decide to diversify your risk? Did you ask yourself if it was time to de-risk myself or the business, both of which is not mutually exclusive?

John Rothschild: “My business is trendy. Taking money off the table is important. I did so regularly and invested it. I lived on my income.

“Keeping all your eggs in one basket, the business, is risky.

"Business owners are challenged to make decisions every day, and it is essential for them to know their risk tolerance," says John Rothschild, senior Vice-president of CARA Operations and former Chairman and CEO of Prime Restaurants. Rothschild has been through many events which impacted the restaurant and food industry, but also his staff.  

“I recognized that my highest risk was the business,” Mr. Rothschild says. “You do need to reinvest in the business. You do have to put money in the business or it will die. You have to manage that business on a daily basis.

“Keeping all your eggs in one basket,

the business, is risky."

“Diversify long term wealth preservation for your family. Take some money out of the business in a disciplined, mechanical way and by keeping a piece aside, you can take the risks in the business, but have a nest egg for the family.

“However, I didn't have the time or discipline to manage my own money. I choose people I trust and they do it well. Owners have to balance personal wealth and operating company investment. It’s possible to diversify the long-term wealth preservation for your family by taking some money out of the business. By keeping money aside on a monthly basis, I could handle the risks in the business, but have peace of mind by setting aside a nest egg for the family.

I made the effort to balance personal wealth and operating company investment. I stayed within my lifestyle, and shared the gains with those around me.”

QUESTION 1: Are all your eggs in one basket?

Entrepreneurs take financial risk in their business; that’s where they invest a dollar and try to grow it – by doing what they do well. Many business owners' default investment strategy is to funnel their money back into their business.

The idea of having wealth invested in what the business owners know, leads them to re-invest all of their cash back into their company. This creates a build up of concentration risk and it is where a wealth manager becomes important.

It’s possible to diversify the long-term wealth preservation for your family by taking some money out of the business in that disciplined, mechanical way which John Rothschild described.

John Rothschild was able to manage the risks in the business, but have peace of mind by setting aside a nest egg for the family.

QUESTION 2: What are your financial risks?

Are you an entrepreneur keeping all your eggs in the one basket? You know this is risky. Yet many business owners believe they know their business and, in their minds, they think this will reduce their risk. When entrepreneurs have the bulk of their wealth invested in their own business, their financial future and their family’s financial future could be in jeopardy.

For those business owners who want to grow their wealth consistently, the research shows that diversification is the key. The risk can be reduced through diversification, such as taking exposures across other industries. That is where your wealth manager becomes critical.

If you would like to discuss further, please reach out and contact me.

Jacoline Loewen is the director of business development of UBS Bank (Canada). She has over 25 years of experience in finance for high-achieving entrepreneurs and family businesses. She specializes in the transition from business to sudden wealth from sale of a business and the impact on the Founder, their family, inter-generational wealth transfer and philanthropy. Prior to joining UBS Bank, Ms. Loewen specialized in finance, specifically sales and acquisitions, successions and private equity financing.

Ms. Loewen has authored numerous best-seller books such as, Money Magnet: How to Attract Investors to Your Business, Business e-Volution and The Power of Strategy. She is a guest columnist to the Globe & Mail and contributor to the National Post, Thomson Reuter, Profit and was a regular panellist on BNN: The Pitch.

In 2018, Ms. Loewen was awarded #1 Forecast for Markets and Stocks by The Ticker Club Annual Forecast. She is ranked # 6 in the Top 100 Family Business Influencers on social media and awarded Top 50 Board Diversity.

She is on a director on the Toronto Atmospheric Fund board and investment committee, Chair of the OCAD University business catalyst advisory board, as well as  former  director  on  the  Private  Capital  Market  Association   board.

You can follow her on Twitter @jacolineloewen

Published in "The Globe and Mail," and Ivey Business School Magazine, PIERRE L. MORRI

**These are the comments of Jacoline Loewen only, and not of UBS Bank (Canada) or affiliates. No instructions for business transactions or which affect any client's accounts will be accepted through LinkedIn. Communications may be monitored and retained by UBS. All information and comments are provided for current, informational purposes only.