It is your small business and you've worked hard to make it a success.
But one day it won't be yours.
You'll decide to step back and hand over day-to-day responsibilities to someone else, or a medical event may make the decision for you. That's why you should put a succession plan in place that ensures your hopes for your business – like funding a comfortable retirement or leaving a legacy for your family – are realized.
Here are some essential planning items to consider:
• Sell it?
At some point, sell your business to the highest bidder. Or if you have co-owners, partners or other shareholders, have them buy you out.
Be sure you have a buy-sell agreement in place. Speak to your lawyer about putting one in place before you are in a position that you want to sell your business.
Alternatively, you could offer ownership to certain key employees. The most difficult task may be setting a value on your business.
• Keep it in the family?
You'll have to decide how to finance the transfer. The new owner could purchase an interest in the business but at what value?
You might plan on leaving shares to a person, like one of your children, but have you considered if there are enough other assets in your estate for other children? Do you need to increase your insurance coverage to provide that inheritance?
• Wind it down?
If your knowledge and expertise is the biggest asset in your business, you may not be able to sell it unless your client list has some value.
There are many different aspects to deal with when winding down a business, such as disposing of remaining inventory, giving notice to landlords, creditors and customers and, if your business is incorporated, deciding whether to keep the corporation going for tax purposes or winding it up.
• Other things to consider:
Assessing the tax liabilities of the sale to you, your family or estate; ensuring the growth on your business receives the most favourable tax treatment; considering capping the tax liability on your business through an estate freeze by transferring ownership and future growth of capital assets, usually to your children, now rather than after your death; or placing the business in a family trust that becomes a separate taxable entity and is not included in your estate.
When making your succession plan for your business you should consult a lawyer to deal with the legal aspects.
It's hard to imagine your business without you — but you need to plan for that day now and your legal and tax advisers and professional adviser have the knowledge and perspective to help you make the right decisions for your business and every other aspect of your financial life.
J. Kevin Dobbelsteyn is a certified financial planner with Investors Group Financial Services Inc. His column appears every Wednesday.