Developing an Exit Plan – The Benefits

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Developing an Exit Plan – The Benefits

All privately held business owners will one day exit their business.  The exit will be voluntary (at a time of the business owner’s choosing) or it will be involuntary (due to burnout, illness, disability, marital problems or death).  An exit strategy is needed to ensure a voluntary exit.  A contingency plan is needed to be prepared for an involuntary exit.  Either way – a plan is needed! The largest transfer of private wealth in history will occur over the coming decade.  Some estimates have this transfer at $10 trillion in the U.S. and $1.3 trillion in Canada.  The increasing supply of businesses for sale […]

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Business Plans Are Not Just For Start-Ups

This week I want to discuss something vital to businesses at every stage of their life cycle – Business Plans. Most people recognize the importance of business plans for start-up companies.  However, business plans are equally important for established businesses operating in high growth, mature or declining industries.  Studies show that business plans increase the odds of business growth and raising capital.  Without a business plan the chances of success are greatly diminished and the likelihood of a catastrophic failure is increased. Here are 6 reasons why all companies should have a business plan: Raising capital – dealing with the concerns […]

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BV Benefit #10 – Executor / Trustee Protection

Executors of an estate with business interests should obtain an independent professional business valuation as support for the values used in the estate administration tax (“EAT”) filing, particularly in light of recent changes to EAT legislation and the potential for personal liability facing executors. At the time of probating the will, EAT (previously known as “probate fees”) of 0.5% must be paid on the first $50,000 of estate assets and 1.5% on the value of the remaining assets. [1]  The estate representative (i.e. executor or trustee) has many responsibilities, including but not limited to: Filing an affidavit as to the […]

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BV Benefit #9 – Matrimonial Separation

According to Statistics Canada, over 40% of marriages will end in divorce before the 50th year of marriage. [1]   Where there is a family business or where one spouse has an ownership interest in a privately held company, there may be a need for an independent business valuation in a matrimonial separation. The division of property is a major issue in a divorce.  According to the Ontario Ministry of the Attorney General: [2] “When a marriage ends, the equal contribution of each person to the marriage is recognized.  The law provides that the value of any kind of property […]

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BV Benefit #8 – Shareholder Disputes

Business owners typically do not require an independent business valuation every year.  Or do they? In shareholder disputes there is often an immediate need for a business valuation.  However, being proactive and obtaining an annual valuation can help to avoid a potential shareholder dispute. Business ownership can be complicated, particularly when there are a number of shareholders.  The odds of disagreement, conflict and dispute in these situations can be very high.  When shareholder relationships break down there should be a mechanism in place for dealing with the dispute or for enabling one or more of the shareholders to exit the business in […]

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BV Benefit #7 – Life Insurance Coverage

Many business owners utilize life insurance as an integral part of their exit and contingency planning.  Without life insurance the overall family wealth management plan may be incomplete. Life insurance is often used for income replacement or to alleviate the burden of estate and probate taxes upon death.  However, when business owners use life insurance to fund a buyout or redemption of the shares of a deceased shareholder it is important to ensure that the death benefit will be adequate to: Fund the buyout or redemption of the deceased shareholder’s shares (Buy/Sell Insurance); and Ensure the continued survival of the business […]

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BV Benefit #6 – Tax and Estate Planning

With many business owners planning to transfer the business internally to the next generation over time, one option is through an estate freeze. In an estate freeze the business owner’s common shares are exchanged for preferred shares of equal value to the common shares.  New common shares are then issued by the company to the next generation family members.  This allows the business owner to “freeze” his/her unrealized gain in the corporation on a tax-deferred basis, with any future growth in value of the company accruing to the children.   As a result, the business owner can estimate and plan for the […]

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BV Benefit #5 – Internal Transfer of a Business

According to recent studies on the business succession market in Canada, between approximately 30% and 40% of business owners surveyed are expecting to transfer the business internally to other shareholders, management, employees or a family member. [1]  A valuation prepared by an independent business valuator (perhaps annually in accordance with a shareholder agreement) is highly recommended and very beneficial for purposes of transferring business ownership internally. In order to ensure a smooth internal ownership transfer, it is extremely important for all parties involved to agree on the current fair market value of the business.   The current fair market value […]

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BV Benefit #4 – Sale of a Business to a Third Party

According to recent studies on the business succession market in Canada, more than one third of those surveyed are expecting to sell the business externally to a third party. [1] “We should remember that good fortune often happens when opportunity meets with preparation.” – Thomas. A. Edison This quote is aptly applied to situations involving the sale of a business to a third party, the fourth benefit of obtaining a professional business valuation.   For business owners today, the opportunity represents the short window of time before the aging baby boomers begin to flood the market with businesses for sale. […]

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BV Benefit #3 – Pre-Sale Planning

The third benefit of having a professional business valuation (i.e. share valuation) is its use in pre-sale planning for business owners. As previously mentioned, between 60% and 75% of business owners will exit their businesses within the coming decade.[1]   Over $10 trillion in private wealth will change hands in North America over this time frame, the largest transfer of private wealth in history. [2] The increasing supply of businesses for sale will put downward pressure on sale prices. Buyers will only pay top dollar for the most attractive businesses and preparing a business for sale takes time. Effective pre-sale […]

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