Leaving a Legacy with your Business: Storybook Ending or House of Horrors?

leaving a legacy

Let’s paint a picture of two very different scenarios when selling your business. As a business owner, you know the hard work and dedication it takes to make your dreams a reality. You have overcome countless obstacles along the way, made sacrifices of time and resources, and failed more times than you’ve succeeded…but through sheer will, perseverance and faith in yourself, you reached your goal—you created a successful business! But now that you’ve achieved success and established your legacy to be proud of, what comes next? How do you ensure that when it’s time for you to move on from this venture (for whatever reason), will there be a happily ever after waiting in the wings for your children or successors? Or rather, something akin to a house of horrors with every aspect of change creating an issue too big to bear? Let us dive into leaving behind a legacy which is rock solid enough, so no one has trouble standing its foundations during turbulent weather ahead.

The Steps to Transition your Business

Time affords you flexibility. Time allows you to put a proper succession plan in place. The business owner wakes one day and says, “I’ve had enough; I want out today!” As absurd as that may sound, I’ve seen it happen, and it has a severe impact on the successful transition of the business on a few different fronts.

1) Tax and estate planning:  These strategies take time, but the benefit is significant. If you plan these years in advance, you could avoid facing a huge tax bill. Using tax planning vehicles, you can eliminate or defer a significant amount of tax. Putting together an individual pension plan, retirement compensation arrangement or corporate-insured retirement plan can eliminate your tax bill or defer it down the road when you may be in a lesser marginal tax bracket. If you’re hoping to qualify for the Lifetime Capital Gain Exemption, conforming to passive income and ownership rules will help determine eligibility.

2) Preparing your business to be sold: Several things need to be done to transfer ownership. Most importantly, is the business able to run properly without the business owner? Have your clients, suppliers and employees been aware of the transition and are they on board and supportive? Many don’t like change, especially without a clear, concise plan. Uncertainty creates fear, and people will tend to abandon ship if uncomfortable with the scenario moving forward.

3) Is the Owner Psychologically Prepared for Retirement?  We all have had bad days. I’ve had days so bad that I’ve thought about selling my business out of frustration, only to step back from the circumstances and not act hastily. As a business owner, are you emotionally prepared to walk away? What will you do instead of running your business after you realize a day is difficult to fill? You could figure it out after you’ve left, but when running your business has occupied such a significant part of your life, that will be a tremendous void to fill.

4) How much will I sell my business for?  All this preparation for your exit will pay dividends when fetching the price you want for your business. A well-planned exit strategy will not only ease the transition of ownership but also will command a higher purchase price. Also, owners are often asked to stay on for a period to help transition to new ownership. Typically, this can be anywhere from one to five years. If the owner leaves before the set timeframe, the purchaser can claw back some of the purchase price. If the business is well prepared, the owner can negotiate a shorter transition period for which they need to stay.  

Conclusions

There are many considerations when selling your business. The most important factor is having the business running successfully without the current ownership. The business owner should pay careful attention to tax and estate planning. Whether you have a concrete written plan or notes on a napkin, you should think about this for up to ten years before deciding to go to the marketplace. Whether you are thinking of selling your business or winding it down, there’s a right and wrong way to do it. The longer you give yourself, the easier the transition, the more money you likely will make, the fewer taxes you will pay, and the more emotionally prepared you will be for the change. A well-thought-out transition will result in a better and more meaningful legacy you will leave behind.

Chris’ Bio

Through the bankruptcy of his first business, a strong balance sheet means nothing unless you can get the money out of your business and into your hands personally and tax efficiently.

When selling your business, this is even more relevant, as this likely will represent the largest tax event in your lifetime. You can write a big cheque to CRA or give it to a cause you are passionate about.  There is a strategic way to get the money you gave to a charity back into your family’s hands again.

His business, The Finish Line Group, aims to help support the entrepreneur’s financial, philanthropic, and emotional needs.  Also, he is the Executive Director of the charity, How Are You Feeling, a program that teaches kids how to understand and manage their emotions.

Chris’ Why Statement is, “To openly communicate the lessons learned from my past so that others will thrive in their lives, minimize their setbacks and leave a positive and lasting legacy.”

leaving a legacy with your business