Wednesday, September 2nd14.7°C
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David Allard

Begin with the end in mind

We humans love our dates: birthdays, anniversaries, 9/11, the Ides of March - our lives are intimately woven within the tapestry of the calendar. So it should come as no surprise when you ask a business owner when they’re planning to retire, they can usually narrow it down to some kind of date. The truth though is they will retire when they are ready, or when they can. Sometimes they may be forced to retire at a time other than their choosing: bad health, economic cycles or family matters all have an impact on the timing of when a business owner retires.

The bigger question isn’t so much when you’re planning to sell your business, as when should you start planning to sell your business? The best advice will tell you that you should build your business with the sale in mind. Just like goal setting, always begin with the end in mind. Creating a business that has enduring value, which is transferrable and that doesn’t revolve solely around you are some initial objectives worth considering as well.

Planning for the sale of your business while you’re still working it doesn’t mean you’re less motivated about its growth or that you’re less present, it means that when the time comes you want as many options on the table as possible. The downside to leaving things until you’re nearer the date is that some of the options that were available to you earlier may not be there six months before you’re planned retirement date. Economic cycles may be working against you; the last thing you want to do is try and sell your business in the middle of a recession. What if you have a key employee who is integral to the operation of the business? Many business owners will purchase key person insurance to protect them from the death of a key employee. Typically people are approved easier when they are younger, so rather than wait for warning signs, why not get it early? The same goes for creating buy/sell agreements or non-competes – the earlier you act, the stronger your position will be when you decide to sell the business.

Identifying a successor is one of the biggest challenges for business owners. If your children are chomping at the bit to take over, your business is thriving and the financing of the deal isn’t an issue than getting started early is somewhat less important. For most owners though, that isn’t the way things generally play out. The planets don’t usually line up perfectly and the process is more complex and takes considerably more time than originally expected.

My business partner has a client he works with who is still in the process of selling his business. When he first approached Dave, he excitedly broke the news that he was ready to retire. That was five years ago and it took that long to finalize the sale. This was with the advantage of the purchaser being in the family and having the right skills. Even then it wasn’t without its challenges: the buyer needed time to consider the long term commitment it would entail, they needed to qualify for financing of the restricted shares, get insurance in place, negotiate terms, create and agree to a buy sell agreement. Even now he’s still not fully retired as he’s working to support the new owners.

So if you’re starting a business, in the middle of building it or enjoying the benefits of having built a great company and you’re wondering when you should start thinking about selling it, the answer is the same regardless: start today.

 

This is for information purposes only. It is recommended that individuals consult with their financial advisor before acting on any information contained in this article. The opinions stated are those of the author and not necessarily those of Scotia Capital Inc. or The Bank of Nova Scotia. ScotiaMcLeod is a division of Scotia Capital Inc., Member CIPF.



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The real fountain of youth

One of the beliefs I have regarding retirement is that it’s about more than money. That isn’t to ignore the benefits a well-funded retirement will deliver, it’s just acknowledging that a successful third stage of life is made up of other factors as well.

Personal health and fitness will get you millions of hits on a Google search. It seems that at all ages we are a society obsessed with exercise, diet and personal care. Depending on one’s age, the driving force behind the obsession ranges from esthetics, to competition to mobility. As we get older though, the motivation becomes more about longevity and mobility and less about how we will look at the beach.

Imagine being vibrant, healthy and active into your eighties. For some, that is already a reality, for many of us though, the inevitable challenges that the years present us with remain a mystery and we too often feel we have no control over our physical state. A book written in 2007 by Chris Crowley, a man then in his seventies, and his doctor, Henry S. Lodge called Younger Next Year, dives into the benefits of a cardiovascular and strength exercise program and a moderately healthy diet.

It’s their belief that our bodies are always either in a state of repair or decay and depending upon the signals that we send, it will respond accordingly. As we age, the signals we send our body go a long way in determining the health we experience. They also suggest that many of the physical challenges we experience as we age may be avoided with a proper regime. That isn’t to say we won’t be victims of different physical challenges, diseases or ailments along the way. It says that all things being equal, we have the ability to lead active and healthy lives if we commit ourselves to taking responsibility for our own health. After all, we either wear out or we rust out.

Another important subject the book discusses is the value of connection: community, friends and family, and interests, and their contribution to the well-being and quality of life we experience after the age of fifty. While Chris Crowley delivers the patient’s perspective, Dr. Lodge delves into the science. From tales of double black diamond skiing in Colorado powder to rowing or daily walking habits, there’s an approach for people at any level of fitness.

Their points are honest, well researched and simple in execution. It was an excellent read and I would recommend anyone past fifty to at least have a glance through it and decide if there’s something there for them. You can also check out their website at http://youngernextyear.com/.

 

This is for information purposes only. It is recommended that individuals consult with their financial advisor before acting on any information contained in this article. The opinions stated are those of the author and not necessarily those of Scotia Capital Inc. or The Bank of Nova Scotia. ScotiaMcLeod is a division of Scotia Capital Inc., Member CIPF.



Taking care of business

Retirement as a goal has changed a lot over the years. There was a time, it was the only goal. You’d punch the clock and count the years until you could stop punching that timecard. For most folks, it meant the beginning of a corporate pension and the start of government benefits. It was straightforward and pretty simple.

Today, things have changed. Fewer people have the luxury of a corporate pension plan and more and more Canadians have built their own businesses. From online to bricks and mortar or professional corporations many of us have created our own careers and built companies. Creating over our working years is one thing, figuring out the worth of what we have built is another. The biggest question we get from our corporate clients is, “What is the best way to realize the value of our business for retirement?”

The answer, as always, is “it depends.” The bigger question to start with is do you want to take the money and run by selling the business outright or do you want to transition your way out over a period of time? For those entrepreneurs with an obvious candidate—a key employee, a partner or a relative who is willing to take over, this might be an easier question to answer. However, for those without a clear succession plan, the solutions are more complex. First you need to find a buyer who sees the same value in your company as you do and then you need a buyer with the financial wherewithal to make it happen. Of course there are financing arrangements that can facilitate the deal, but they will have fit with your expectations.

Most of the main challenges to selling a business are valuation, financing and timing. In order for a deal to come together, all three of these need to line up. When salary or commission people decide to retire, the only real question they ask themselves is whether or not they “have enough money,” the rest is simply making choice to relinquish their days of 9-5. Business owners, on the other hand, have built an asset that they have emotional ties to, and much of its merit is often tied to intangibles like good will—ultimately that can, and does, put timing decisions in the hands of the buyer.

So what steps should a small business owner take to successfully transition their life’s work into a comfortable retirement? There are five main planning steps that will help pave the way to a smooth transition:

  1. Identify and Review Priorities
  2. Identify a Buyer or Successor
  3. Develop a Succession Plan
  4. Integrate with Personal Financial Planning
  5. Monitor Plan Implementation

 

The most important thing to remember though is start early! We can’t stress this enough; the longer you wait to start making arrangements, the less leverage you’ll have when it comes time to make the sale. The closer you get to retirement, the less control you’ll have in your hands, and the more will lie in the markets.





No news is good news

As our world grows smaller, the number of options we have available to us grows. The global market has connected us to events that in past years would often be buried in the back pages of the newspaper, but today are front and center.

Nowhere has this become more evident than in the stock and bond markets.

Interest rate changes in India, housing demand in China, weather and natural disasters, technology – all contribute to the daily gyrations of the prices of stocks and bonds. When I was first studying to be a financial advisor, the only place I could get historical bond prices to do yield calculations was in the public library in the periodical archives. Today, it’s not only available to anyone with a wireless connection, but you can get real time updates, historical pricing and forecasts all with a couple of clicks on your browser.

So what does all this mean? In the investment world it means that time, in many cases, has been removed as both an advantage and a buffer. Technology has delivered most information into the hands of anyone willing to look for it. In the past, having access to certain information could bestow the holder with a tremendous advantage when buying and selling securities; today that same information is readily available to almost anyone. Don’t get me wrong, there are still great advantages to be had in holding information, it’s just that the valuable content is purposefully buried even deeper and thus harder to get at.

As a buffer, we are all victims of the noise now. We are bombarded with information that for many of us has little impact to the medium and long term fortune of our lives. In fact, if we are holders of strategic investments rather than traders—who purposefully buy and sell currency or stocks—much of the data we are exposed to is of little use. We may think it’s important to know what the Fed or Bank of Canada has to say at their meetings, yet few of us are able to determine how this information is of any value to us in the short, medium and long term for our retirement prospects.

Our advice is always the same. Return to your original objectives and remember what your plans were when you made them. When you hear that the US Federal Reserve might raise the Fed funds rate or that OPEC isn’t going to decrease oil production levels, ask yourself: does it matter to how you manage your life or your investment portfolio? Do you need to react to this information somehow and if so, what should you do? Sure, if it constitutes a trend and you can identify interest rates may start climbing dramatically or that oil prices will fall for an extended period of time maybe you should look at your maturities or asset allocation for some fine tuning. If it’s just day to day noise though, you may want to filter it out and lower the level of static in your life. Everything we hear or read isn’t necessarily important; just because we can see it doesn’t mean we need to do something about it.



Read more Navigating Retirement articles

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About the Author

Jeff Stathopulos, CIM, CFP, Portfolio Manager

After two decades in the financial services industry, Jeff's experience as an advisor and branch manager define his approach to providing customized financial planning, estate planning, and managed income solutions. Key to this approach is a thorough understanding of the unique challenges and goals that exist in every client's life. He is a partner in Navigation Wealth Management.

Jeff holds the Certified Financial Planning and Chartered Investment Manager designations. He lives in Kelowna with his wife Tanya, and their two (almost adult) enterprising children.

 

You can contact Jeff by email at [email protected]

Website:  www.yourlifeyourplan.ca




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The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet presents its columns "as is" and does not warrant the contents.



These articles are for information purposes only. It is recommended that individuals consult with a financial advisor before acting on any information contained in this article. The opinions stated are not necessarily those of Scotia Capital Inc. or The Bank of Nova Scotia. ScotiaMcLeod is a division of Scotia Capital Inc., Member CIPF.


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