Baby boomers who own businesses may be considering retiring and if so what are the considerations?
Whether you intend to sell the business to a third party, transfer it to family members, structure a management buy-out or wind it up, advance planning can help you make better long-term decisions.
Will your business provide enough to fund your retirement?
If much of your net worth is tied up in the business, you may be less diversified than those who have a more traditional retirement portfolio. Remember that, unlike a salaried employee, it's up to you to fund your own retirement. Do you have a strategy? If you haven't given further thought to that far-off day, consider that many business owners each year are unable to sell their businesses for a variety of reasons. These include difficulties finding a suitable buyer and obtaining financing for the successor, once they have been identified.
Don't leave the planning to the last minute
Don't expect to put together an effective succession plan in a short period of time. Many business owners underestimate how long it takes to do this. Begin by writing down your goals and get some professional legal, tax and accounting advice on setting up a succession plan.
Be conservative when you're planning for retirement. Maximize other sources of retirement income, like RSPs or IPPs for example, and however much you love what you do, don't leave your retirement planning too late. Allow time to find potential buyers to ensure you get the best possible value for your business. Here are some tips to consider:
Start working on your succession plan as early as possible
Set realistic goals
Review your plan regularly
Identify the qualities you're looking for in a successor, i.e. skills, resources
Assemble a team of professional advisors (business broker, experienced legal advisor, tax specialist, financial advisor) to help you put your plan together
Where is your business in its life cycle?
Your business's life cycle can influence your retirement planning. Early on you may have little resources or time to give to retirement planning. Later on when you're established, you may have more time and resources - however, the best time to plan is as soon as possible.
During the early years and periods of growth, build retirement planning into your decisions by diversifying and directing surplus assets to RSPs, IPPs, tax-exempt life insurance and/or non-registered investments. Obtain professional tax advice to help maximize cash flow to these assets. You may also be able to split income with family members and that can be beneficial when you eventually sell the business. Build a comprehensive estate plan, including putting wills and powers of attorney in place and keep them up to date as circumstances change.
Long-range planning may not be uppermost in your mind when faced with your current day-to-day business challenges, but a business succession plan can improve the overall value of your business and help maintain its strategic direction. Setting goals and timelines helps to keep you on track and forces you to think long term. During the planning process you may also identify talented future leaders and others who could take on pivotal roles. You can then ensure they get the training and experience they'll need when the time comes.
This article was supplied by Colin MacAskill, a vice-president and an investment advisor with RBC Dominion Securities Inc. This article is for information purposes only. Please consult with a professional advisor before taking any action based on information in this article. Colin welcomes your calls on his direct line 604-257-7455.
