Want to be your own boss? If you are a budding entrepreneur, already own a small business or are looking to purchase a business, this blog post is for you! Even at the earlier stages of your working life, it is important to think about future succession and plan accordingly. By planning up front, you access strategies of tax savings over the life of your business (not just upon retirement). You also benefit from flexibility built into your corporate structure and business goals in order to grow the business while reacting to changes in your needs or goals or in the business environment.
For the new small business owner
As discussed briefly in part 1 of the series, all small business owners should consider succession planning regardless of the number of years they are from retirement. Planning up front will allow you to create a corporate structure that gives you flexibility to focus on the growth of your business as well as tax efficiency in your remuneration now and into the future. For example, you may wish to create share classes to allow for your kids or a partner to join in the business in the future. Alternatively, if your children are teenagers, you may wish to add a family trust into your corporate structure so you can flow funds to your children (once they reach adulthood). This can to help pay for their post-secondary education, for a down payment on a home, or to start a new business while benefitting from lower tax rates. It should be noted that the tax changes implemented in 2018 by the federal government attempt to curtail income splitting with family members where certain criteria are not met. As such, income splitting with family members may not be available where they are not active in the operations of the business full-time or do not own shares directly in the business.
The key to this early planning is to allow flexibility to focus on growing your business while also being able to respond to changing business goals, competition and your personal situation.
For the budding entrepreneur
When looking to begin a business, you are often focused on how you will build a customer base and how to get noticed. While those are important to generate revenue, you must also consider how you set up the business legally. Should you incorporate? Should you operate as a sole proprietor? Making this decision will affect liability, taxation, filing requirements and so on. It is important to know the benefits and challenges of all options and make an informed decision and understand when it may be best to change your business structure. Even if your business has operated without making such decisions, it can be beneficial to start thinking about them now. Often public accounting firms will meet you initially at no charge to help you make some of those decisions. This is a great opportunity to gain knowledge on the compliance side of your new venture while allowing you to determine if those accountants are people you can work with over the life of your business. As you build your business, you will build relationships with advisors that will help shape the future of that business. It is important to start finding people who can help along the way.
For the soon to be small business owner (purchaser)
With the Canadian baby boomers nearing retirement, now is a time of great opportunity for young entrepreneurs to enter the business world. The higher level of retirements will increase the number of businesses transitions and therefore generate new opportunities for those looking to take over an established company. However, there will still be challenges. How do you get noticed as a potential buyer? How do you determine which business is right for you? A good start can be to build relationships with key players in your chosen industry as well as business advisors (lawyers, accountants and bankers) in your community. This can create a list of prospective companies to purchase while also creating a business network. Ideally you would connect with a business owner who is willing to employ you, teach you about his or her business and build you into her successor. Doing so not only allows you to purchase a business, but it increases your chances of success after the owner retires as you have intimate knowledge of the business and customers of the company you bought.
To all the budding entrepreneurs: ACT NOW! It is never too early to prepare to become the business owner of your dreams, so start setting your goals.
Want to check out our Succession blog series?
Succession Part I: Should you have a succession plan? | RLB LLP
Part I of our succession blog series asks the question “Should you have a succession plan?” Read our blog to get your answers about succession planning!
Succession Part II: Why bother planning? | RLB LLP
Business owners often ask: Why bother planning for succession? Read Part II of RLB’s succession planning blog series to find out!
Succession Part III: When should I start planning? | RLB LLP
Check out Part II of RLB’s succession planning blog series to find answers to the question of: When should I start planning?
Succession Part IV: Where should I start? | RLB LLP
Check out Part IV of RLB’s succession planning blog series to find answers to the question of: Where should I start?
Succession: What are my options?
Business owners work for years to build up a business that they are proud only to come to the grim realization that they will be walking away from it all upon retirement.
Succession: Are you a budding entrepreneur or someone still growing his/her business?
Want to be your own boss? If you are a budding entrepreneur, already own a small business or are looking to purchase a business, this blog post is for you!
