Business Transition. Planning. By: Sophie Lalonde, B.A.A., CIM, FCSI, CSWP Investment Advisor

Transcription

1 Business Transition Planning By: Sophie Lalonde, B.A.A., CIM, FCSI, CSWP Investment Advisor

2 Agenda What is business transition planning? Why work with CIBC Wood Gundy? The business transition planning process Planning for life after work The business life cycle

3 Business Transition Planning Transferring ownership and management Maximizing financial security and minimizing tax Protection of your retirement assets Providing liquidity for business during transition Maintaining family harmony

4 The Importance of a Business Transition Plan Business Transition Plan Maintains operation of business Provides protection for unexpected event Provides tax-efficient transfer of business Structure retirement income

5 Why Work With CIBC Wood Gundy? One of Canada s oldest and largest full service investment advisory firms Mid-Market Investment Banking Commercial Banking Relationship Investment Advisor CIBC Wood Gundy A Team Based Approach Financial Security Advisor Accountant Lawyer

6 The Process

7 The Business Transition Planning Process Getting Started on Your Plan Consider your Options Determine the Price Tag Finance the sale of your business Plan For contingencies

8 Getting Started on Your Plan Plan early Develop a financial plan Re-evaluate your plan if there is a change to: Your family situation Your business plan Business debt Business assets or growth

9 Consider Your Options Sell to a third party Management buy out Pass ownership to heirs or family members

10 Passing Ownership To Heirs Challenges: Family members currently involved in the business? Children: age/ability/interest? Natural heir apparent? Spousal issues with successor? Divorce? Equalization of assets with other children? How to you maintain family harmony? Open lines of communication Third-party mediator

11 Resources SuccessCare CAFE (Canadian Association of Family Enterprise) Family Enterprise Solutions

12 Determining the Price Tag What are your needs? What is your business really worth? Objective Business Valuation Asset-Based Market-Based Income-Based

13 Determining Fair Market Value Who you sell the business to can determine how the business is valued: Arm s length vs. Non-arm s length Always consult a business valuator and a tax professional to determine which valuation is best for your business

14 Financing the Sale of your Business Sell to a third-party Cash and/or financing Management buyout Cash and financing plus loans Pass on to heirs or family Income paid for a number of years

15 Planning for Contingencies Plan for the unexpected: Death Disability Illness Divorce Insurance needs: Life Insurance Disability Insurance Critical Illness Insurance Shareholders Agreement Buy/Sell Agreement

16 Tax Consequences Take advantage of tax exemptions Defer tax liability to next generation Reduce probate fees (excluding Quebec) Estate planning to minimize tax

17 Planning for Life After Work

18 Retirement and Financial Planning Financial planning for retirement: Individual pension plan (IPP) Retirement compensation arrangement (RCA) Deferred profit sharing plan (DPSP) Corporate estate bonds Other retirement options

19 Individual Pension Plans (IPPs) Defined benefit pension plan for one person Plan must be sponsored by a company Set up for an employee of the company Objective is to maximize retirement benefits

20 Guidelines When Considering An IPP Qualifications: Business owner, key employee, executive Age 45 or older Employee earnings above $100,000 (approx.) Benefits: Contributions and fees are 100 percent deductible Contribute more than allowable RRSP limits Ability to make up deficits through additional tax-deductible contributions to the plan

21 IPP versus RRSP Example: Employee, 55 years of age, earning $116,667 per year Retiring at age 65 Past service from January 1, 1991 Connected with plan sponsor IPP&RRSP RRSP Only $3,000,000 $2,611,768 $2,500,000 $2,000,000 $1,561,457 $1,649,033 $1,500,000 $1,000,000 $994,865 $640,394 $991,775 $500,000 $

22 Termination Options Leave IPP Intact, receive pension benefits from the plan Purchase annuity Transfer to Locked-In Retirement Account (LIRA) Transfer to a RRSP (in Quebec only)

23 What is an Retirement Compensation Arrangement (RCA)? Supplemental executive pension plan (SERP) Set up by a corporation for an employee Provides retirement income in excess of pension plan and RRSP limits No effect on pension plan or RRSP contribution limits Not subject to provincial pension legislation Funds are generally creditor protected

24 Qualifications and Benefits Qualifications: Business owner, key employee, executive Employee earnings above $200,000 (approx.) No minimum age requirement Benefits: Contributions are 100 percent deductible May be used as collateral for a loan Can be used to attract and retain key employees

25 Other Retirment Saving Options Registered Retirement Savings Plan (RRSP) Tax-deductible contributions Tax-sheltered growth within the plan Comprehensive investment options Tax-Free Savings Account (TFSA) Contribution of up to $5000 per year without paying tax on income and gains earned within the account Investment grows tax free Tax-free withdrawals No restrictions on withdrawals Amounts withdrawn can be re-contributed in future years Unused contribution room can be carried forward indefinitely

26 From Ownership To Retirement Life will be different Having a financial and personal plan is key Options for transition: Retire completely Stay involved

27 Giving Back Private Charitable Foundation Donor Advised Funds

28 Planning Through All Of The Business Life Cycles

29 New Business Life Cycle Business Profile Started business within the last two years, or contemplating a start-up Need or have accrued debt for the business Typically one or two employees Business owner is a key person Business Banking Solutions Estate Planning Solutions CIBC Wood Gundy Solutions Business planning guide Term insurance Financial planning Operating accounts Disability & Critical Illness insurance Business planning Visa cards for business Wills and power of attorneys Brokerage account

30 Developing Business Cycle Business Profile Business is six to ten years old Financially increasing cash and assets, while decreasing debt Less profits are going back into the business May now have other shareholders Business Banking Solutions Estate Planning Solutions CIBC Wood Gundy Solutions Borrowing Key Person insurance Investment solutions Cash flow/cash management Shareholder s agreement Disability and Critical Illness insurance Employee benefits Health and welfare plans

31 Growing Business Life Cycle Business Profile Business is ten to fifteen years old Financially increasing cash and assets, while decreasing debt Able to retain earnings for reinvestment into the business May have key employees and executives Business Banking Solutions Estate Planning Solutions CIBC Wood Gundy Solutions Cash flow/cash management Corporate estate bond IPP Financing an expansion Buy/sell agreements RCA Family trusts Financial and retirement planning

32 Mature Business Life Cycle Business Profile Business is greater than 15 years old More cash/assets little or no debt May have outside shareholders and children may be involved Business Banking Solutions Estate Planning Solutions CIBC Wood Gundy Solutions Financing the transition Estate freeze Transition planning Corporate insured annuity Charitable giving Asset allocation rebalancing Retirement income needs

33 One Day, you Will Sell

34 Did you Know? Of small business owners plan to retire by the year Only two in five have a clear exit plan. Source: Are Canadian Entrepreneurs Ready For Retirement? CIBC Small Business, 2005

35 How we Can Help You We will help you create, update and maintain a business transition plan that meets your needs for today and tomorrow Contact us to set up a no cost, no obligation meeting to discuss your business transition needs

36 To Reach Us Delgaty Lalonde Financial Group Telephone: Toll Free: By sophie.lalonde@cibc.ca scott.delgaty@cibc.ca dave.thomas@cibc.ca nathalie2.cormier@cibc.ca Website :

37 Disclaimers CIBC Wood Gundy is a division of CIBC World Markets Inc., a subsidiary of CIBC and a Member of the Canadian Investor Protection Fund and Investment Industry Regulatory Organization of Canada. This information, including any opinion, is based on various sources believed to be reliable, but its accuracy cannot be guaranteed and is subject to change. CIBC and CIBC World Markets Inc., their affiliates, directors, officers and employees may buy, sell, or hold a position in securities of a company mentioned herein, its affiliates or subsidiaries, and may also perform financial advisory services, investment banking or other services for, or have lending or other credit relationships with the same. CIBC World Markets Inc. and its representatives will receive sales commissions and/or a spread between bid and ask prices if you purchase, sell or hold the securities referred to above. CIBC World Markets Inc Clients are advised to seek advice regarding their particular circumstances from their personal tax and legal advisors. If you are currently a CIBC Wood Gundy client, please contact your Investment Advisor. Given the complexities involved, specialized tax and pension advice must be sought to ensure an Individual Pension Plan (IPP) is appropriate to individual situations. An IPP strategy must be considered within the context of a comprehensive financial and estate plan. Insurance services are available through CIBC Wood Gundy Financial Services Inc. In Quebec, insurance services are available through CIBC Wood Gundy Financial Services (Quebec) Inc.