Exiting Your Business

Ask the Experts – An Advice Series for Entrepreneurs

RBC Royal Bank:• Introduction and Considerations in Establishing

the Top LineSpeaker: John Abbenda

Welch LLP:• Readying Your Business for Sale, Tax

Considerations, Who is going to buy and how?Speakers: Candace Enman, Zoran Vranjkovic

AGENDA

Perley-Robertson, Hill & McDougall LLP/s.r.l.• Family Trusts and other legal

structures/Considerations

Speaker: Anthony McGlynn

AGENDA

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Planning for Your Personal and Business Retirement:

John R. Abbenda, CFP, TEP, CPCA

Financial Planning

Ontario East

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What is Business Succession?

• Business Succession is the transition of a business asset to family or another owner. It could also involve the windup of a business.

• Business Succession is often confused with Business Owner Retirement.

Lets look at Business Succession in a different light…

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Business Owner Retirement

Personal Retirement Goals or Legacy Goals

minus

Personal Retirement Assets

equals

Business Succession Needs

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Retirement Planning Process

Identify/quantify business assets

Identify/quantify personal assets

Implement solutions

Visualize and Quantify a Life Plan

CONSTRUCT the Plan

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STEP 1

Visualize and Quantify Your Future

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Visualize and Quantify Your Future

We believe there are 7 key areas of your life (in addition to your business) that need to be visualized and discussed in order to develop a solid financial plan. None of these areas is about money – but they all have a significant financial impact now and into the future.

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Life Planning

Family• How will your spouse and children factor

into your transition plans?• How will your business retirement affect

your family life?

Health• How do you plan to change your lifestyle

after you sell your business?• What will you and your spouse do to keep

active in retirement?

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Life Planning

Home• How do you see your current home fitting

into your future?• Have you thought about purchasing a

vacation home?

Lifestyle• What activities will you replace work

with?• How will you replace the social contact

your business provided you?

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Life Planning

Work• What did you like about business

ownership? Is there a way to carry this beyond retirement?

• How will the new owners engage your expertise?

Legacy• How do you plan to give back to the

community that supported your business?• How do you plan to share the fruits of

your success with others?

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Life Planning

Your Mind & Spirit• How will you replace the mental

challenge that running a business offered?

• What are some adventures that you put on hold while running your business that you would now like to pursue?

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Summary

It’s not only about the money!• Visualizing your future and sharing that vision with your

spouse, family, business partners and other loved ones is probably the most difficult and overlooked step in planning for retirement.

• When you have developed definition around what you want your future to look like, the next step is to quantify your dreams and goals.

• Your Financial Planner can help you attach values to these and begin the financial planning process.

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What we can do with you.

Help you identify what you want the future to look like. Facilitate the discussion.

Identify personal and business assets that will be used within the financial plan.

Work with your professional advisors to develop an integrated personal and business retirement plan.

Work with your professional advisors to put solutions in place to accomplish the plan.

Re-visit the plan regularly to monitor progress and make changes as needed.

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This presentation has been prepared for use by RBC Dominion Securities Inc.*, Royal Mutual Funds Inc., RBC Private Counsel Inc. and RBC DS Financial Services (Quebec) Inc., Member Companies under RBC Investments. The Member Companies, Royal Bank of Canada, Royal Trust Corporation of Canada and The Royal Trust Company are separate corporate entities which are affiliated. In Quebec, financial planning services are provided by Royal Mutual Funds Inc. or RBC DS Financial Services (Quebec) Inc. and each is licensed as a financial services firm in that province. In the rest of Canada, financial planning services are available through RBC Dominion Securities Inc., Royal Mutual Funds Inc. or RBC Private Counsel Inc. Insurance products are only offered through RBC DS Financial Services Inc., RBC DS Financial Services (Ontario) Inc., RBC DS Financial Services (Quebec) Inc., subsidiaries of RBC Dominion Securities. *Member CIPF.

The strategies, advice and technical content in this presentation are provided for the general guidance and benefit of our clients, based on information that we believe to be accurate, but we cannot guarantee its accuracy or completeness.This presentation is not intended as nor does it constitute legal or tax advice. Clients should consult their own lawyer, accountant or other professional advisor when planning to implement a strategy. This will ensure that their own circumstances have been considered properly and that action is taken on the latest available information. Interest rates, market conditions, tax rules, and other investment factors are subject to change.

™Trademark of Royal Bank of Canada, used under licence. RBC Investments is a registered trademark of Royal Bank of Canada, used under licence. ©Royal Bank of Canada 2003.

Thank you!

Candace Enman, CA, CPAPresident, WelchGroup Consulting

Readying Your Business

for Sale

• View their businesses as assets

• Think like an Owner

• Build your business to last decades, but prepare to sell it tomorrow

Owner’s Mindset

The most important Demographic Wave of the 21st Century

6.0M Private Businesses+70% owned by BB & WWII Generation

4.2M Must Change Handsin the next 5-20 Years

Demographic Wave

1 out of 4 – Middle Market Companiessell when taken to market

Company Value

$

InvestmentSurvival Cash Flow Wealth

Time

Most Private Businesses have Zero Economic Value

Owner’s Value Challenge

Value = Profit that is Sustainable

& Transferabl

e

CEO• Profitability

trend• Analysis of risk

• Company• Customers• Employees• Operations• Infrastructure• Processes• Legal• IP

Value ≠ Revenue or EBITDA

1. Can you survive a due diligence?

2. Would you like the results if you performed a due diligence on yourself?

Due Diligence

Business Value Drivers

Top 5 Red Flags1. Do it all Business Owner2. Strategic direction3. Talent management4. Financial management5. Quantifiable advantage

Red Flags can Erase all your Value

What’s your Value Scorecard?

Know your value

Think like a Buyer

Turn weaknesses into opportunities

No surprises at due diligence

Stage your Business for Sale

Candace Enman, CA, CPAPresident, WelchGroup Consulting

cenman@w-group.comca.linkedin.com/in/candaceenman

(613) 236-9191 x195www.w-group.com

For More Information

Zoran Vranjkovic, CPA, CA, CFP, TEPSenior Tax Manager, Welch LLP

Tax ConsiderationsWho is going to buy & how?

• Asset sale vs. Share sale

• Corporate structures

• Earnouts

Agenda

• Corporate tax Recapture Capital gains

• Personal tax on distributions

• Purchase price allocation

• Purchaser – step-up in tax basis

• Purchaser will generally prefer asset deal

• HST election

Asset Sale

• Lifetime Capital Gains Exemption ($750,000/$800,000+)

• Personal tax at capital gains rates

• Due diligence process

• Indemnification by vendor

• Vendor will generally prefer share deal

Share Sale

• $800,000 lifetime capital gains exemption at time of sale, CCPC all or substantially all (90%) of assets

used principally (50%) in an active business carried on primarily (50%) in Canada;

shares were not owned by an unrelated person in 24 months preceding sale; and

in 24 months preceding sale, CCPC with more than 50% of assets used principally (50%) in an active business carried on primarily (50%) in Canada

• Potential tax savings – up to $185k - $198k per exemption

• Trust planning to multiply access to CGE

Share Sale – Capital Gains Exemption

• Timing of planning

• Alternative Minimum Tax

• Foreign activity/foreign subsidiaries

• Non-resident purchaser

• Business real estate

Share Sale – Capital Gains Exemption Considerations

• Sale of shares by individual/trust – Capital Gains Exemption

• Corporation sells assets

• Consider where: capital gains exemptions fully use; significant intangible assets; and/or compromise with purchaser.

• Purchaser – step-up in tax basis

Hybrid Sale

Opco

Family Trust

Holdco

PrincipalFamily

Common shares

Common shares • Holdco may have

excessive non-business assets

• CGE only available to individuals (sale must be by trust or individuals)

Corporate StructuresCGE Questionable

Opco

Family Trust

Holdco

PrincipalFamily

Common shares

Common shares

• Trust may sell Opco shares

• Principal and family may access CGE

• Surplus funds may accumulate in Holdco

Corporate StructuresMultiple CGE’s

CanadianOpco

Family Trust

Holdco

PrincipalFamily

Common shares

Common shares

ForeignOpco

Common shares

• Canadian Opco may qualify for CGE (business primarily in Canada)

• Foreign Opco may be sold at same time – capital gain

Corporate StructuresForeign Activity

Opco

Family Trust

Holdco

PrincipalFamily

Common shares

Common shares

Realtyco

Common shares

• Allows for sale of Opco and retention of real estate

• May sell Opco and Realtyco

• Sale of Realtyco may qualify for CGE

Corporate StructuresBusiness Real Estate

• Option #1 – Include value of earnout in proceeds at time of sale

Cashflow issue Risk if not received after more than 3 years

• Option #2 – Cost recovery method Arm’s length capital transaction Due to difficulty in valuing goodwill No longer than five years Notify CRA Vendor is Canadian resident

• Goodwill – earnout component fully taxed

Earnouts

Candace EnmanPresident, WelchGroup Consultingcenman@w-group.com(613) 236-9191 x195www.w-group.com

Zoran VranjkovicSenior Tax Manager, Welch LLPzvranjkovic@welchllp.com(613) 236-9191 x282www.welchllp.com

For More Information

Family Trusts and other Legal Structures /

Considerations

Anthony P. McGlynnPerley-Robertson, Hill & McDougall LLP/s.r.l.

Welch LLP, 151 Slater Street, Suite 1100, OttawaThursday, November 14, 2013,

2:00 p.m. – 3:00 p.m.(Networking 1:30 p.m. – 2:00 p.m.

Business Structures

• Corporations• Partnerships• Limited Partnerships• Sole Proprietorships

Family Trusts

• Shareholder of a corporate structured business • Income Splitting• Maintaining control• Capital gains tax issues

QUESTIONS