ask the experts: growing your business
DESCRIPTION
As an entrepreneur, your goal is to build a business that will grow for years to come. Review our presenters' slides with notes to show you how you can increase the value of your business, retain employees and evaluate growth options to achieve maximum success. Also learn about increasing the value of your business, leasing, franchising, and purchase & sale agreements. To view our video coverage of the event, visit: http://www.welchllp.com/resource-centre/videos/events/TRANSCRIPT
Growing Your Business
Ask the Experts – An Advice Series for Entrepreneurs
RBC Royal Bank:• Introduction, Retaining your employees
Speaker: Tyler Ray
WelchGroup Consulting/ Welch LLP: Speakers – Candace Enman, Bron Vasic, Ryan Dostie
• Increasing the Value of your Business, Business Valuation, Leasing vs Buying
AGENDA
Perley-Robertson, Hill & McDougall LLP/s.r.l.:
Speakers: Lorraine Mastersmith, Josh Moon
• Leasing, Franchising, Purchase and Sale Agreements
AGENDA
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Employee Retention
October 31st, 2013
Tyler Ray – RBC Group Advantage
Solutions for building and retaining a productive workforce
Information included within is current as of April 2013, is for informational purposes only and does not constitute financial or other advice.
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Current Employment Marketplace
Industry leaders understand the importance of building and maintaining a strong team
Key factors in achieving this: Attracting and retaining top talent Providing more value for money spent on employee benefits Promoting financial wellness Being creative with R&R
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Attracting and retaining top talent
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Attracting and retaining top talent
SOURCES: Aon Hewitt, Bersin & Associates, Gallup, Globoforce, McKinsey, Towers Watson, 2010 Right Management Survey
Turnover can cost your company 50-75% of the employee’s salary
Low Mid High
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Attracting and retaining top talent
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Employee Benefits - Value for Money
Industry Trends
Employees prioritize benefits in order of:
1. Wages
2. Comprehensive Insurance Benefits
3. Retirement Benefits
Employers are reviewing their offerings in these categories to assess value for money/cost effectiveness as well as employee engagement
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Employee Benefits - Value for Money
Retirement Benefit Plans
Industry Trends
1. DB Pension Plans -> DC Plans
2. DC Plans -> Group RSP Plans
Reasons for change are reduced employer cost, reduced employer risk and increased employee engagement in company plan
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What is it? A collection of individual RRSP accounts
Members make contributions from their payroll
Who regulates it? Individual accounts adhere to the Income Tax Act
Plan is registered with the Canada Revenue Agency
CAP Guidelines define sponsor, member and administrator
responsibilitiesHow are assets accumulated
Employer and/or employee contributions
Plan Options and Investments
Personal and Spousal plan
Investment options selected by employees based on choices
available within the plan.Restrictions or Vesting
Employer and/or employee contributions
Group Retirement Savings Plans
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Contribution Limit 18% of the employee’s previous year’s earned income (up to
$23,820 in 2013) plus or minus other adjustments.
Should consult CRA Notice of Assessment from previous year. Tax Consequences for Company
Employer contributions are considered part of an employee’s
salary, are considered tax deductible as an expense, and are
subject to payroll taxes (e.g. CPP, EI, etc.).
Tax Consequences for Members
Payroll deduction contributions reduce income for tax purposes.
Tax receipt issued for member and company contributions.
Immediate tax savings through reduced withholding at source.Withdrawals by Members
Taxable as income unless transferred to another registered plan.
Withdrawals are subject to withholding taxes.
Termination and Retirement
Assets can be transferred to an RRSP, RRIF.
Assets can be taken in cash as a withdrawal from the plan.
Assets can be transferred to a RRIF or used to purchase an
annuity no later than age 71.
Group Retirement Savings Plans
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Promoting Financial Wellness
Definition of FINANCIAL WELLNESS:
The balance between having a healthy state of well being today while preparing financially for tomorrow.
It is not necessarily about being wealthy, but it is a state of psychological well being in which one feels they
have control over their current finances and financial future.
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Promoting Financial Wellness
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Creative Employee Benefit Best Practices
Providing R&R programs that encompass benefits
i.e. Bonuses to Retirement Plans for achieving milestones or goals, directing bonuses to plans achieve tax sheltering for employee etc.
Enhancing employee benefit packages through other non-traditional means
i.e. Using reward points earned through company credit cards for employee R&R, provide value add partner rewards at minimal or no cost to company
Candace Enman, CA, CPAPresident, WelchGroup Consulting
Increasing the Value of your Business
Business Value
• Owners need to build a company that someone will want to buy
• Owners wear multiple hats and often become fire fighters
Owners’ Value Challenge
Financial Measures
Revenue, EBITDA
Business Owners are too busy chasing Revenue and Profit as a measure of value
instead of building an operational asset that can be sold
Business Owners building an operating asset that can dependably sustain future revenue and
profit, even without the business owner in charge
The Profit Trap Value = Pst
Value ≠ Revenue
Value = Profit that’s sustainable and transferable
Value Formula
Do you know what your business is
worth?
Is this value sustainable &
transferable for your business?
Do you know what “key drivers”
affect the business value long term?
Are you maximizing the value of your business – likely your largest asset?
CoreValue Rating based on a framework of 18 Value Drivers
You Need to Know
• Do you know how to address them?• Do you understand what to do first that will
give you your “biggest bang for your buck”?
Top 5 Red Flags1. Do it all Business Owner2. Strategic direction3. Talent management4. Financial management5. Quantifiable advantage
Red Flags – Negate all Value
Summary1.Definition of Value2.Business Drivers3.Action
Increasing the Value of your Business
Bron Vasic, CA, CPA,CMCChairman, WelchGroup Consulting
Valuation Methods
Business Valuation
Process
- Determining how much a business is worth
- Several different business valuation methods
- Many factors need to be taken into account
Introduction to Valuation
The total value of a company is equal to• The present value of
• All its future profits• Discounted for risk
Can be based on “historical” actuals or “projections” of the future
Valuation – the Formula
Essential that you have an accurate understanding of the company’s current and
future value
Asking basic, yet important, questions about the business
Valuation
How much of the company’s top line is recurring revenue? Are there contracts with customers / clients? Does the business have:
• Unrecorded assets and/or liabilities• IP or patents not on the books• Property or undervalued assets• Customer relationships
Can the business survive without the existing owner? Are there significant capital investments required in the near
future?
Valuation
Forecasted future cash flows
Time
Fre
e C
ash
Flo
w
Discounted for present value
Discounted for Increasing risk
Final Year used for “terminal” valuation
Visualizing Market Valuation
Using the NPV (Net Present Value) of future FCF (Free Cash Flows)• Assumes a discount “risk factor” depends on
business (from 25% - 40%)• Brings cash flows into current $’s• Generate a “Terminal” value
• Brings into current dollars (40% - 50% discount)
Valuation – the Calculations
Have a current road map for your businessHave an up to date business/strategic planDo not stop investing for growthEnsure the business is transferable
Ensure your personal structure allows you to minimize potential tax liabilities on a sale
Valuation - Summary
Candace EnmanPresident, WelchGroup [email protected](613) 236-9191 x195www.w-group.com
Bron VasicChairmen, WelchGroup [email protected]
For More Information
Welch LLPChartered Professional Accountants
Lease vs Buy
Ryan Dostie, CPA, CA, CFP
Overview
Cash flow
How does this impact my financial statements
Tax consequences
Other considerations
The solution
Cash Flow
Lease Buy
Payments lower Payments higher
Easier to obtain You require decent credit
Terms can be flexible Less flexible
Less maintenance costs Capital maintenance costs
Cost more in long run Cost less in long run
How does this impact my financial statements
Operating lease Direct charge to the income statement Included in the notes to the financial statements under commitments
Capital lease Asset and liability set-up on balance sheet Amortization and interest on the capital lease on the income statement Separate note disclosure detailing various aspects of the capital lease
and amount shown in property and equipment
Purchase Asset and liability (assuming not using cash) set-up on balance sheet Amortization on the income statement Disclosure in property and equipment note and related debt
Tax consequences
A lease is a lease Fully deductible with one exception Leasehold improvements over the term of the lease plus one renewal
term
CRA guidelines for deduction of purchased assets Commercial buildings 6% Computers 55% Vehicles 30% (some restrictions apply) Equipment/Furniture & Fixtures 20%
Other considerations
How long do I need this asset
You do not own the asset if you lease
Leasing helps address the problem of obsolescence
Penalties to terminate lease or exceed usage
Growth/reduction of your business
The solution
It depends!
Leasing, Franchising, Purchase and Sale Agreements
October 31, 2013
Josh Moon and Lorraine Mastersmith
Overview• Lease Agreements
• Franchise Agreements
• Purchase and Sale Agreements
The Offer to Lease
• Protection in the Offer – Address as many business issues as possible in the Offer and include a condition allowing your lawyer’s review before it is binding
Leasehold Improvements
• Who pays to install and who pays to remove?
Operating Costs & Taxes
• What is included in the “extras”?• Is the management fee fair and reasonable? • Know all your costs up front
Covenants and Insurance
• Are personal guarantees required and if yes, can they be limited?
• Have you obtained insurance coverage for all your risks as a tenant?
Flexibility & Subleases
• Is there an ability to negotiate increase or decreases in space requirements?
• Pitfalls and Benefits of Subleases
Franchise Agreements
• Statutorily governed• Strict disclosure requirements• Personal guarantees
Purchase and Sale Agreements
• Standard terms• Subcontractors• Web-based contracts• Privacy issues
Lorraine Mastersmith1400-340 rue Albert StreetOttawa, ON, KIR 0A5T: 613.566.2810F: 613.238.8775email: [email protected]
Joshua Moon1400-340 rue Albert StreetOttawa, ON, KIR 0A5T: 613.566.2801 F: 613.238.8775email: [email protected]
QUESTIONS