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It-s-Your-Life

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.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.



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About the Author

Jeff Stathopulos, CIM, CFP, Portfolio Manager

Jeff is an advisor and partner with The Navigation Team at Scotia Wealth Management.

He lives in Kelowna with his wife Tanya, their two university bound daughters and their canine kids.

You can contact Jeff by email at [email protected]

Website:  www.yourlifeyourplan.ca

The Navigation Team

Scotia Wealth Management

This column 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 Canadian Investor Protection Fund.



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The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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