Half of owners of small business to retire in next 10 years

Yesterday's edition of the Ottawa Citizen carried a really interesting article about business owners wanting to retire and sell their businesses over the next ten years. What will that mean to them in terms of their financial plan? What will the huge number of businesses changing hands mean to Canadians as a whole? The big picture is bigger than most realize, as this article points out.

There may not be enough buyers for businesses at the right time. Many business owners are going to walk away from all of those years of investing their time, money and effort with absolutely nothing to show for it, because they aren't planning ahead. The article estimates that the number of business owners who end up with nothing could be as high as half of current small and medium-sized businesses.

Click here to read the article.

The best way to ensure that your lifetime of working for yourself leaves you something to retire on is to plan your exit well in advance. Planning for ten years down the road is not too early, though it may feel that way when your days are busy with running a business. Now is the time to start considering your options - whether you want to train a family member to take over, sell to employees or sell to a complete stranger or competitor.

If you need help getting started or getting organized, please refer to my book called "Succession Planning Kit for Canadian Business".

Successful business owners' estate planning seminar

Last night I presented a seminar in Edmonton to a group of customers invited  by our Ottewell and Wagner Road branches. All of the customers are owners of their own businesses. What a fun time we had! There were plenty of questions and lots of laughs too. Nobody thinks that estate planning seminars can be fun, but this group proved otherwise.

Thanks go to Morgan Ree of Roynat for giving us some great examples of creative financing for business owners. And I'd particularly like to thank the folks who had read my book called Succession Planning Kit for Canadian Business and told the group how much they liked it. Feels great to get positive feedback from readers.

Bottom line: you need a succession plan

As this article says, a business owner at or near retirement age can't ignore the need for succession planning. But he or she should start planning well before then. For some ideas and plenty of good information, click here to read an article from the Globe and Mail.

To help you get started on your business succession planning, click here to get a copy of my book called "Succession Planning Kit for Canadian Business".

Your Christmas present to me, and vice versa

Today I notice that the hit counter here on Estate Law Canada is about to turn over 50,000. I'll consider your continued readership as my Christmas present from the blogosphere, as it means a lot to me. I hope you find my posts to be informative, useful and entertaining. I hope that you find gems of needed information and ideas among the links and resources I dig up and post. Keep your comments and email questions coming and I'll continue to answer as many as I can.

I'd like to give a gift to you in return. The first person who emails me asking for a copy of my book "Estate Planning Through Family Meetings (Without Breaking up the Family)" will receive one free of cost. And the first person who emails me asking for a copy of my book "Succession Planning Kit for Canadian Business" will receive a copy of that free of cost. Please don't ask for both because I want to send books to two people. I'll send you the books personally. The email address is estatelawcanada@gmail.com. Make sure you include a mailing address!

Happy holidays!

Few business owners ready for succession

I'm attaching an excellent article from Kate Robertson in the Globe and Mail that discusses business succession planning. She talks about why some business owners wait too long to start planning, and defines how long is too long. She also discusses a couple of options open to business owners. Click here to read it.

The article focuses in part on how risky it is to try to hand a business down to the next generation. This is, of course, part and parcel of waiting too long to get started. This is a point that I made in my book Succession Planning Kit for Canadian Business. If you're a business owner and you're not sure how, where and when to start your succession planning, reading articles and books to get ideas is a starting point. Sooner or later though, you're going to have to put the ideas into action.

Step-children add complexity to family firms

This article from today's Globe and Mail talks about the quandary facing business owners who find that the best candidate to take over the business one day is a step-child, not a biological child. Click here to read it. Oh and by the way, it's by your favourite lawyer/writer - me! The attached photo is also from that article.

85% of small business owners don't have succession plan

A new study shows that 85 % of small business owners, and 40% of larger (more than 50 employees) businesses don't have a succession plan. Almost half of the business owners said they hadn't started succession planning yet because they felt it was too early to do so. These figures don't surprise me, as they are very similar to the figures I found published elsewhere when I was researching my "Succession Planning Kit for Canadian Business" book.

Something I found very interesting in the report of the study was that the number of business owners who have a strategy in place for disasters or unexpected events (such as an outbreak of H1N1) has increased by 10% since 2008. I'm glad that more business owners are becoming aware of the need for planning ahead, even if they haven't quite got as far as full succession planning.

The unfortunate part of putting off your succession planning is that if an unexpected event takes the business owner out of the picture permanently - due to death or disability - the business often suffers. Sometimes it means that a business is sold at a fire sale price, or that it can't be held/run for a child who isn't quite old enough to take it on yet, or that inventory or assets devalue significantly.

Click here to read the article in the Globe and Mail.

Books work well as gifts

Yesterday I was contacted by a financial advisor who is buying several copies of my Estate Planning Through Family Meetings book to give to clients as Christmas gifts. I also know a business broker who gives out copies of my Succession Planning Kit for Canadian Business book to clients who attend his seminars. Both of these guys told me that they find the books great as gifts because the books are so easy to read and understand, and contain tons of practical information and tips.

If this is something you think you'd like to do for your clients, customers or family members, you can buy copies of my books by clicking on their links on this blog. You can also get them online at Chapters and Amazon. If you are interested in larger bulk orders, send me an e-mail note, or contact the sales manager, Jason, at Self-Counsel Press at jason.crawford@bell.blackberry.net

Feedback is always welcome.

Planning for the next CEO

This article in the Financial Post says that only 10% of companies today actually invest in developing future leaders. So who is going to be ready, willing and able to take over a business in the event the CEO passes away or loses capacity suddenly and unexpectedly? This is something that all business owners need to think about and then get moving. Click here to read the article.

In my opinion, you need to devote up to five years to identify and groom your business's successor and structure the transfer of the business to him or her. This subject is of course dear to my heart because it was the subject of my second book, Succession Planning Kit for Canadian Business.

A family business succession plan success story

This is an upbeat (not all estate planning articles are gloomy!) article about a family business successfully passed on to the next generation, with some thoughts about how to achieve that goal. Click here to read this story in the National Post.

How to succeed at business succession

I'm attaching an article from the Globe and Mail about the need for business succession planning. They use Lloyd Robertson and Larry King as examples of two opposite means of choosing a successor. It makes pretty interesting reading. Click here to read the article. If you want to know more about business succession planning, check out my book, Succession Planning Kit for Canadian Business.

Is a management buyout right for you?

Business owners who are thinking about retirement or changing careers may be considering a management or key employee buy-out of the business. It can be a great idea in the right circumstances, but as with all major financial decisions, you need to get all the facts first and think it over carefully. If you're wondering whether this would be a good idea for you, check out this article by Western Business Brokers called Is a management buyout right for you?

Also, check out my book called Succession Planning Kit for Canadian Business.

Review of my book in Alberta Venture Magazine

Kristiana Indradat reviewed my book "Succession Planning Kit for Canadian Business" in the June 2010 issue of Alberta Venture Magazine. She said:

"Breakups are tough. Planning your exit strategy away from something or someone in which you've invested years of energy, effort and a few sleepless nights can be hard to do - especially if that thing is your business. Before you potentially hand over the reins to your eldest child or most senior staff, Lynne Butler, author of Succession Planning Kit for Canadian Business, wants you to consider some things.

With 20-plus years of experience in wills, estates and trusts, Butler guides you through the manageable process of succession planning. She discusses the options that might apply to your business - selling, transferring, freezing estate, farm rollover, buyout or winding down your operations. Worksheets at the end of each chapter (and in the included CD-ROM) help organize your thoughts on topics such as "Financing Your Succession Plan" and "Putting a Dollar Value on Your Business", making the eventual counsel with your lawyer, accountant and other professional advisers less painful. She also offers substantial food for thought for the 30% of Canadian business owners, according to a 2007 RBC study, who are thinking about passing the business along to a family member. A full chapter considers the issues and complications of keeping it in the family.

Butler also recognizes that taxes are an unavoidable part of the succession planning equation and offers insight about capital gains throughout the book. "Planning ahead allows you to find and use tax-efficient ways of transferring your business," Butler writes. "Failing to plan could mean paying a lot more tax than you have to." Her rule of thumb? Allot at least five years from start to finish to execute your exit."

coming event - Women in Business Expo

Later this month, I'll be speaking at the Women in Business Expo in Calgary on the basics of business succession planning. Most of what I'll be speaking about is also addressed in my latest book, "Succession Planning Kit for Canadian Business."

It looks like they've got a fantastic line-up of speakers for both days of the Expo. Hopefully I'll see some of you there. If you'd like to check out the seminar schedule, with summaries of the speakers and topics, click here. I'm really excited about this event!

Successful succession takes time - Edmonton Journal

Here is the link to today's Edmonton Journal interview with me about business succession planning. Hope you enjoy it!

Look for me in tomorrow's Edmonton Journal

Tomorrow there will be a feature on me and my second book (Succession Planning Kit for Canadian Business) on the front page of the business section of the Edmonton Journal. Please take a look. I'll post a link once it's published.

Monitoring and assessing your successor's progress

So you've selected someone to take over your business when you retire or sell. You've put training programs in place or mapped out an educational plan for your successor. What could go wrong?

Despite all of your careful preparations and efforts, it's possible that the person you have selected as your successor is not going to work out after all. Perhaps the person is less motivated than he or she should be, does not seem to be able to catch on to how things are done, has lost interest, or perhaps you are simply not satisfied with his or her effort or attitude. It's important that you have ways of assessing and monitoring your successor's progress to learn his or her new role. Your assessment must amount to more than "just a feeling that things are not going to work out", particularly if your successor doesn't agree with that assessment.

To start off your working relationship with your successor, spend some time talking about exactly what each of you wants out of this business relationship. Make sure you are both clear on how long his or her training period will last. Set out goals and timelines. Agree on how progress is to be measured and how your successor will get feedback and from whom the feedback will be obtained. (For instance, will you be the only person monitoring his or her progress or will there be someone else directly involved as well, such as a senior manager?)

The idea is to make sure that both of you know exactly what is expected to happen and when it is supposed to happen. This will give your successor the best possible chance of being successful.

Though it may seem overly formal if your successor is a family member, you need to learn to treat him or her in a businesslike manner. You are about to invest a lot of time, money and effort in him or her, and you are much more likely to get a good result if the process is documented, clearly understood and professional.

During these initial conversations, you should tell your successor what will happen if he or she is unable or unwilling to achieve the success you both expect. Is this person going to be the owner of the business no matter what, or is it possbile that if he or she does not fit well into the business that you will look elsewhere for a successor? How long will you take to decide that?

Also consider how long your successor will have to try out working for you before he or she decides that running your business is not what he or she wants to do. Set a time line so that your successor will not string you along unneccessarily. These are issues that need to be clearly understood by both parties and even put into writing before your successor starts working for you.

When you make decisions about teaching your business to your successor, put those decisions into your written plan. The plan should be broken down into several specific, measurable goals with specific timelines for achieving them. Obviously the goals will differ depending on the type of business you have. Some examples of measurable goals are:

Dollar amount of sales
Number of new contacts made
Number of calls or jobs successfully completed
Number of bids successfully made for projects
Number of repeat customers
Percentage of market share increase
Improvement in efficiency
Increase in public awareness of the product or service
Decrease in expenses in targeted areas

When goals of this kind are set, discuss them with your successor. Be clear about targets, time lines and expectations. Agree with your successor about how his or her progress will be measured. Agree to meet again to discuss progress on a regular basis. Keep the information flowing between you.

For example, if you have set a goal of $25,000 per month in sales, review your successor's sales figures each month. Is he or she consistently selling only $10,000 per month instead of $25,000? If so, is there any way you can help improve those numbers through more training, mentoring or feedback? Is your successor gradually increasing sales each month as he or she learns the ropes?

Make sure you and your successor talk about the targets regularly. Do not take him or her by surprise many months after a target is set by abruptly stating that he or she is a failure at the job because goals have not been met.

My book, Succession Planning Kit for Canadian Business, devotes a full chapter to preparing your successor and monitoring progress. I'll add to this topic here on this blog on a future date.

What is an estate freeze?

An estate freeze is a way of transferring ownership of a privately held corporation, often between family members, by reorganizing the company. The freeze has two purposes. One is to transfer ownership of the company from one owner to another. The second is to limit the capital gains tax for the business owner who is transferring his or her shares to someone else. Both of these things happen at the same time.

Before the freeze, the business owner usually holds common shares of his or her business. Common shares give the share owner a stake in the profits and direction of a company. Usually a common share does not give the owner a right to receive a dividend but instead represents a share of the overall value of the company itself. As the value of the corporation grows, the value of the common share also grows. Another important feature of a common share is that it almost always gives its owner a vote in the running of the corporation.

On th day agreed on for the estate freeze, the business owner exchanges those common shares for preferred shares that have a fixed monetary value. At this point, the old owner is owed a specified sum of money for the ownership of the business. That sum of money is reprsented by the new preferred shares. The sum of money might also be secured by putting a promissory note into place in addition to the preferred shares.

The new preferred shares can either be shares of the operating business itself or can be shares of a holding company. They will never increase in value even if the common shares increase in value. The new preferred shares can be voting shares or non-voting shares, depending on what the business owner and the successor have agreed, although it would be more common for the old owner to receive non-voting shares.

The outgoing business owner is liable for capital gains tax on the increase in value of the business from the day he acquired it to the day of the freeze. The new owner is liable for the tax from the day of the freeze onward.

Business owners might discuss the possibility of an estate freeze with their estate planning lawyers, corporate lawyers and accountants. For a detailed background discussion of estate freezes, see my book "Succession Planning Kit for Canadian Business."

What is your business worth?

Do you ever wonder what your business is worth? If you plan to sell it, you need to know its value, or you might just want to know for tax purposes. Setting an accurate value is no easy task.

It may be relatively simple to determine the value of some parts of your business such as land, buildings, vehicles or inventory, all of which are referred to as tangible assets. Those items could perhaps be compared to other, similar, items to give you an idea of what they are worth. However it may be much more difficult to value other assets. You will need to assign a value to less concrete items (known as intangible assets) like patented technology, goodwill, copyrights, licensing or franchise agreements, trade secrets and customer lists. You can't simply compare yours to others because yours are unique.

Other considerations are whether your business is located in a small or large market, and whether there is potential for growth in that market.

How do you put a value on these things?

Most business owners over-value their businesses and are disappointed in the price they can get for it at sale, because they over-estimate the value of key clients. They forget that once they are gone from the business, the key clients may not feel the same loyalty to the new owners.

For a detailed discussion about what goes into the valuation of a business, how and where to find a business valuator, ideas for maximizing the price of your business and some tips for finding buyers, check out my new book called "Succession Planning Kit for Canadian Business". In the book I talk about selling a business to family members, management/key employees and independent purchasers. At the top of this blog there is a link for you to buy the book online.

My new book is now available

I'm thrilled to let you know that my new book, "Succession Planning Kit for Canadian Business" is now available. To order online, click on the picture of the book on the left hand side of this blog. You can also pick it up at any Chapters store or order it from Chapters Online. Like "Protect Your Elderly Parents", this book is written for non-lawyers and is full of straightforward information written in plain English. The book is written in pretty much the same style as this blog.

If you have any questions or comments about the book, or any suggestions you think I might like to see, please feel free to leave a comment here. I'm always interested in what readers have to say.

My next book will be out in the spring of 2010. I had such a huge response to "Protect Your Elderly Parents" that I'm returning to that topic. The spring book will be about talking to your family about some of the really tough subjects such as which legal solutions need to be put into place for ageing parents. I am constantly being asked about how to bring up these difficult conversations and how to hold a family meeting that will result in effective legal steps being taken, so I'm addressing it in that new book.