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Building Wealth

To help ensure you can maintain your lifestyle throughout your
retirement, it’s important to build wealth both inside and outside your
business.

To help ensure you can maintain your lifestyle throughout your retirement, it’s important to build wealth both inside and outside your business. Building wealth inside your business goes beyond the efficient day-to-day running of your business that leads to a healthy balance sheet and a profitable operation.

This is the first of a two-part series in which I will describe other ways to build wealth inside your business that you might not have considered. They can significantly lower your tax bill, help to maintain family harmony and ensure the future of your business unfolds as you would like.

Set up a succession plan
Article appeared March/April 2010

A succession plan is vital in outlining your “terms of retirement.” Without a plan, you have nothing with which to negotiate and your retirement destiny will rest in the hands of others.

Creating a plan today gives you the time to strengthen your balance sheet, carefully consider a successor or purchaser and put a smooth transition process – for you and your business – in place.

You can also avoid: the potential of handing over your business at a discounted price in a forced sale; tax issues that will reduce the value of your estate and many nights of worry.

You have only one chance to get the sale right and a poor economy or indifferent third-party purchaser take no prisoners.

An Integrated Transition Plan is outlined below. Early on, you may feel fear, uncertainty and want to put the whole thing off. An experienced advisor can guide you to the initiation and implementation phase where you are still in your comfort zone and in full control of the direction you want to take.

Create succession strategies
Article appeared January/February 2012

Once you have identified your business goals, it’s time to put a succession strategy in place. A strategy can help preserve the family/business legacy, ensure discretion and fairness throughout the succession process, and make the transition a smooth one. Here are four strategies to consider:

1. Selling to family members who have the skills and desire (in that order) to run the business. (Plan fair share distributions in advance to avoid family disagreements later.
2. Selling your business to your management team. This requires detailed planning, as you need to manage the expectations of the seller, the management team and the capital providers.
3. Recapitalization/partial sale to keep you in the game. You can recapitalize your business by strengthening your balance sheet to provide short-term personal capital as you seek a like-minded private investor to help take your business to the next level.
4. Selling to a third party. If you sell to a third party, you will want to maximize the value of the proceeds you receive. This can be a straightforward process as the buyer is usually knowledgeable about the industry and will have its own plans to take the business forward. Tread carefully, though, with the help of a qualified advisor.

Consider an estate freeze
Article appeared September/October 2010

An estate freeze is one way to limit tax liability to the benefit of the owner and his beneficiaries today and over time.

It is a fully allowable tax planning strategy under which children are given shares in a family business. It is really a way of transferring ownership of a privately held corporation, often between family members, by reorganizing the company. The freeze has two goals: 1) To transfer ownership of the company from one owner to another, and 2) To limit the capital gains tax for the business owner who is transferring his or her shares to someone else. Both events happen simultaneously. You can consider a full or a partial freeze, depending on the extent to which you want to maintain a financial interest in the business, and how much cash you need in the immediate future. Your tax and legal advisors will help with this strategy.

Work on – not in – your business to stay healthy and sharp
According to Revisiting Work-Life Issues in Canada: The 2012 National Study on Balancing Work and Caregiving in Canada, the typical Canadian employee spends 50.2 hours in work-related activities per week. Sixty per cent work more than 45 hours per week while 36 per cent work between 35 and 44 hours.

You’ll agree that owners actively involved in the family business spend much more time at work than most working Canadians. However, they run a danger of living a one-sided life that can quickly reduce what is really important to them: family, health, friends and outside interests. These are precious and you will rely on all of these once you move to the next phase of your life. Don’t let them drift away for the sake of a few more hours a day on the job.

Working “in” your business can tie your self-esteem to its success or failure. But working on – not in – your business gives you time to take care of yourself by focusing on your family, health, and outside interests.

In my next article, I will talk about how you can create wealth outside your business including the creation of a diversified investment portfolio, setting up a holding company and putting insurance to work to lower your tax bill. These and other strategies can give you the option of maintaining ownership of your business and selling it when – and if  – you wish.

Jim Sanderson is a senior wealth advisor with more than 28 years’ experience in the investment services industry. The Jim Sanderson Group at Scotia McLeod specializes in creating and distributing wealth for successful individuals and corporations in the aggregate and road building industries across Canada. He helps his clients supported by a team of experts in insurance, merchant banking and trust and estate planning. Jim can be reached at jim.sanderson@scotiamcleod.com and his website is www.jimsandersongroup.com .