Transition planning: what you need to know

Everyone who operates a company will eventually reach a point when they will have to leave the business because of age or health concerns. This could mean retirement, sale or simply winding up the firm and closing it down.

Collectively these are known as exit strategies, and every business owner should have one. Yet many will exit their companies without a clear plan. This may be largely due to the fact that entrepreneurs are more focused on starting and building their businesses than on leaving them.

The result? When business owners are ready to pass the torch, they may not get the full value of their company if they're selling to outside interests. Or if it's a family transfer, they could end up leaving family members with unmanageable problems instead of the inheritance they had hoped to bestow.

You can always make better business decisions by planning ahead. If you start to think about succession planning early, you can take a more objective look at your future needs and avoid last-minute decisions. Although unique to every business, a succession plan consists of a series of basic steps, such as setting your financial goals, determining legal requirements and establishing your objectives with your family or successor. It is often a complex and sometimes emotional process for a business owner.

"One of the most important steps is first knowing all the options available to you for exiting," says Calvin Hughes, a BDC consultant. "It's important that you feel active and engaged in the process. But at the same time, you have to accept that you're letting go of your business."

Here are some of the most common exit strategies used today.

Family transfer

If transferring your business to a family member is a possibility, it's key to ensure that your family is fully aware that you're planning a succession and to give them clear time parameters. A part of this, says Hughes, is ensuring that family members get a chance to voice their concerns and interest in the business. One of the most obvious advantages of opting for a family transfer as an exit strategy is that your family will benefit from your business legacy. As well, family members who are already involved in your business may require less coaching or involvement.

Management buyout (MBO)

The purchase of a company by its management team has several advantages for entrepreneurs. It can ensure uninterrupted continuity because the new owners already have invaluable experience with the company. For this reason, your company is more likely to keep its existing clients and business partners.

Selling to outside interests

Selling a business to outside interests is the most popular exit strategy because it's typically "more definitive and involves fewer variables than a family succession," says Hughes. Entrepreneurs should appreciate that the price they receive for their company might be more or less than the appraised market value. "While many business owners tend to overestimate the pricing of their businesses, a surprising number may underestimate it. For example, if your company becomes part of a much larger venture, then the value may go up accordingly," he says. A large corporation that is buying out a business, for instance, may be able to do more than you have with your business and therefore willing to pay a higher price.

Getting the full value for your business

Whether you're passing the company to a family member or selling it to outside interests, keep in mind that you will need a business valuation that establishes a realistic and fair dollar figure for your business. "Putting that dollar value on a business takes time, and you need to have a specialist who can look at your assets, liabilities and goodwill with an objective viewpoint," says Hughes, adding that he has seen too many cases of entrepreneurs who got caught at the last minute and weren't able to get the full value they had envisioned.

For entrepreneurs who choose selling as an exit strategy, Hughes feels they should also be aware that buyers are increasingly more sophisticated and demonstrate more business savvy. "Smart buyers will certainly delve more into your business history. So in turn, you have to anticipate this and be sure that you're armed with the right figures and backup material to get the value that you're looking for. You don't want to find yourself in a vulnerable position," he stresses. Company owners should keep in mind that the value of a business is not just based on financial statements. "The number of customers you have, for example, could also be a determining factor," he says.

Planning ahead

"Planning ahead, at least 18 months to 2 years, helps entrepreneurs make better business decisions," he adds. The earlier you start, he believes, the more time you can take an objective look at your company and where it will be down the road. Succession planning takes time, Hughes stresses, because of many complex issues such as business valuations, tax implications, family matters and coaching successors.

One of the first steps in good planning is to get a lawyer involved at least 12 months in advance. Getting legal help as early as possible in the process can help you avoid frustrations down the road such as delays, extra expenses and ultimately a deal that doesn't meet your expectations.

For more information on the above, please contact HazloLaw Founder & Business Lawyer, Hugues Boisvert at 613-747-2459 x 304 or at hboisvert@hazlolaw.com

Tapping into your “inner” entrepreneur

"Could I do it on my own out there?" is a question that many of us have asked ourselves in the course of our careers.

The answer to that question may be tied to whether or not we have a specific set of aptitudes and motivators that make us potential entrepreneurs, says Yvon Gasse, Professor and Director of the SME and Entrepreneurship Centre at Laval University. Gasse collaborated with BDC to develop the Entrepreneurial Self-Assessment Tool which helps people better measure their entrepreneurial potential.

"Although many factors come into play such as your personal circumstances and timing, research does show that business owners often share certain qualities that make up the entrepreneurial mindset," he emphasizes.

Key motivators

For example, Gasse points to 3 "motivating factors", among others, that attract people to the idea of becoming entrepreneurs in the first place.

1. Need for achievement

"The notion of challenge is an important one for entrepreneurs. They often have a strong need to set objectives and achieve specific goals. They will naturally take measures to meet these goals and will want rapid feedback on their achievements," he believes.

2. Need to influence

"Often entrepreneurial types want to influence people and the course of events. Making money may be one motivator but ultimately entrepreneurs want to make an impact on people through their businesses. They may also want to shape the course of events by, for example, buying another company or moving their business to China."

3. Autonomy

"Another motivator at the root of entrepreneurship is the desire to be independent," says Gasse. "You want to be your own boss and feel in control of your destiny. Independence is a strong driver for people who want to set up their own businesses and pursue their dreams."

Some key aptitudes that shape entrepreneurs

Along with these motivating factors, Gasse contends that entrepreneurs also have specific aptitudes that make them more likely candidates to set up their own businesses.

Among these are:

1. Perseverance

"Business owners are usually determined to get past obstacles and see a project through its completion despite setbacks. They will overcome their frustrations and problems and persevere," says Gasse. "Given the challenges of today's complex business environment, this aptitude is at the top of the list."

2. Self-assurance

"Entrepreneurs show self-confidence and trust their instincts. This self-assurance helps them through difficult times and pushes them to achieve tough goals," he says. Without that self-assurance, people hesitate and aren't so willing to take calculated risks, he adds.

3. Creativity

Another aptitude that Gasse emphasizes is creativity. "This is particularly true when it comes to the ability of an entrepreneur to creatively identify business opportunities. Entrepreneurs instinctively see gaps in the market and can find unique products and services that meet a demand," he emphasizes.

4. Tolerance for ambiguity

"Entrepreneurs are comfortable with ambiguity, and capable of making decisions even when they don't have all the information they need. For example, you might be selling products or services in a relatively unknown market. This level of uncertainty can be very stressful for most people but entrepreneurs learn how to work around it," he believes.

5. Attitude toward failure

"Many business owners have a long history of failures and accept these as part of the learning experience," says Gasse. "Rather than view failure as a catastrophe, an entrepreneur will learn from his or her mistakes and what to avoid the next time around. They'll pick themselves up after a failure and start over."

6. Action-oriented

"Entrepreneurs don't rest on their laurels and are driven to accomplish their objectives through concrete action," adds Gasse. "They want to get down to work and won't put off difficult tasks until later. That strong desire to tackle their objectives and see quick results often characterizes people who want to run their own companies."

Before you get going

If you see that you have the necessary motivators and aptitudes to become an entrepreneur, Gasse recommends that you first get a clear business plan in place. "It's important to not think of your business plan as simply a way to attract financing. It's much broader than that. Ideally, a business plan is a real roadmap that shows where you are going with your company. It should demonstrate that you've done your homework, understand your market and that you can actually generate business. Once you have that plan in place, you can move more confidently ahead."
 
For more information on the above, please contact HazloLaw Founder & Business Lawyer, Hugues Boisvert at 613-747-2459 x 304 or at hboisvert@hazlolaw.com

Are you responsible for your corporation's debts?

As a shareholder of your corporation, you have limited liability. This means that you and the other shareholders are not responsible for the corporation's debts. However, limited liability may not always protect you from creditors. For example, if a smaller, more closely held corporation wants to borrow money from a bank or other creditor, the creditor may ask for the shareholder's guarantee that the debt will be repaid. If you agree to this condition, you will be personally liable for that debt if the corporation does not pay it back.

This applies to taxes owing as well. If your corporation owes taxes and has obtained a loan or secured a line of credit, an advance under the loan or line of credit can be intercepted on account of the corporation's tax arrears. Notwithstanding that the proceeds of the advance have been paid to the receiver general for Canada, the corporation is deemed to have received the advance and is liable to the lender as such. When you have personally guaranteed the loan or the line of credit for the corporation, you would be liable jointly with the corporation for the amounts intercepted.

Directors may also be liable to pay amounts owed by the corporation if it has failed to deduct, withhold, remit or pay amounts as required by the Income Tax Act, the employment Insurance Act, the Canada Pension Plan, the Excise Act, 2001, and the Excise Tax Act. For more information on director's liability, see Information Circular IC89-2, Directors' Liability - Section 227.1 of the Income Tax Act and Section 323 of the Excise Tax Act.

For more information on the above, please contact HazloLaw Founder & Business Lawyer, Hugues Boisvert at 613-747-2459 x 304 or at hboisvert@hazlolaw.com

Crowdfunding is coming to Canada - What you must know...

Crowdfunding can be defined as the collection of funds from a large pool of disparate persons through an Internet portal. This method of raising funds has been used for such various endeavours as political campaigns (e.g. to support a candidate or political party), philanthropic campaigns (e.g. to assist persons in need), artistic campaigns (e.g. to finance a tour by an emerging artist), or commercial campaigns (e.g. to create and sell a new product). However, in some foreign jurisdictions, crowdfunding is emerging as a way for businesses, particularly start-ups and SMEs, to raise capital through the issuance of securities.

In Canada, securities regulators have been considering formally recognizing – and regulating - crowdfunding since at least 2012 but until now only the province of Saskatchewan has done so. On March 21, 2014 the Ontario Securities Commission (the “OSC”), leading the charge on behalf of some of the country’s other securities authorities, released for comment a proposed regulatory framework for crowdfunding.

Qualification criteria

The crowdfunding exemption will only be available to Canadian issuers, meaning those that, along with their parent company and principal operating subsidiary (if applicable), are incorporated or organized in Canada, have located their head office in Canada and whose board has a majority of Canadian resident directors. It is available to practically all types of issuers, both public and private, as long as the issuer has a written business plan.

The exemption applies to a wide variety of securities, including common shares, non-convertible preference shares, securities convertible into common shares or non-convertible preference shares, non-convertible debt securities linked to a fixed or floating interest rate, and units of a limited partnership.

Parameters of offering

Issuers cannot raise more than $1.5 million under the crowdfunding prospectus exemption in any 12-month period.  Furthermore, each investor is limited to investing no more than $2,500 in any given offering, to a maximum of $10,000 per issuer in any calendar year.

Any given round of financing under this exemption cannot remain open for more than 90 days.  A round cannot close unless the minimum offering is subscribed for and the issuer has enough financial resources to carry out the activities set out in its business plan.

Investor protection

Investors must sign a prescribed form acknowledging the risks of their investment. Issuers must provide investors with a comprehensive offering document, in accordance with a prescribed template. Investors are also entitled to receive financial statements, which in certain cases are required to be audited. Unlike a prospectus however, the document is not vetted by the securities regulators, although it still must be provided to them.

In addition to the usual investor rights in the event of a misrepresentation by an issuer, investors are provided with a “cooling-off” right that gives them the ability to withdraw from their purchase up to 48 hours before the end of the offering period.

Finally, issuers not subject to public reporting requirements must annually provide investors with financial statements, notice of how the proceeds of a crowdfunded offering have been spent and disclosure of certain major corporate events such as significant acquisitions or dispositions of assets.  The reporting requirements continue to apply until such time as the issuer becomes a reporting issuer, ceases to carry on business or has less than 51 security holders having acquired their securities under the crowdfunding exemption worldwide. Failure to abide by these requirements would remove the issuer’s ability to rely on the crowdfunding exemption in the future.

Portal registration

Crowdfunding requires an Internet portal on which the offering document, any document described in the offering document, and a term sheet or other summary of the information (including by way of a video) contained in that document is posted. The individual or company making the portal available to the public must be registered as a restricted dealer and comply with many of the requirements applicable to exempt market dealers regarding minimum net capital, insurance, record-keeping, etc. Portals are required to do certain due diligence checks in respect of the issuer, its directors, officers and other related persons and its offering document. Portals are not permitted to endorse or comment on the merits of any investment, nor are they permitted to actively solicit purchasers. Further, portals may not take more than a 10% equity position in an issuer.

What’s next?

The crowdfunding rules are now open for comment for a 90-day period. The OSC has invited written comments on many aspects of the crowdfunding rules. Therefore stay tuned.

You made an acquisition. Now what?

Acquiring a business is a huge step in the life of an entrepreneur. On top of managing your existing company, you now need to integrate a new one, while ensuring that both businesses operate without disruptions.

The first months after the acquisition are crucial for the successful integration of the new business, says BDC Consulting Partner Gail Blanchette. “You need an action-plan to avoid missing on essential steps,” says Blanchette, who advises business owners in Winnipeg.

She offered a must-do list during the first few months after an acquisition.

1. Meet your new people

A change of ownership is a nervous time for employees. That’s why communication is critical. As soon as possible, hold a group meeting with all of your new employees. If your company operates in multiple locations, consider a virtual meeting, through video-call or web-conferencing. “People need to hear the same thing together so that the message doesn’t get misinterpreted around the company,” Blanchette says.

In the mind of many employees, mergers and acquisitions translate into layoffs. Use this first meeting as an opportunity to put people at ease and reduce their fears. Talk about who you are and what your vision is for the business. But don’t promise more than you can deliver.

2. Introduce yourself to customers and suppliers

A change in ownership might be seen by competitors as a sign of weakness, Blanchette says. That’s why she advises entrepreneurs to think carefully about how they want to introduce themselves to customers and suppliers.

In some industries, it really doesn’t matter who owns the business, as long as it’s business as usual, she says. However, if you’re planning changes or will be interacting regularly with key customers and suppliers, you should make sure to call and meet them as soon as possible.

In an ideal situation, the previous owner will help smooth the way during the transition period by introducing you to external partners.

3. Seek to understand the business

No matter how well you’ve done your homework and due diligence before the acquisition, you won’t fully understand how a company works until you actually run it. Blanchette recommends that you perform a high-level, non-invasive examination of the business, using a specialized consultant or even your accountant to help you.

Look to broaden your knowledge by answering some basic questions, including: Are things operating as efficiently as you thought they were? Is the company achieving the financial results you thought? If not, what can you do about it?

While Blanchette recommends that you avoid major changes in the early stages, there may be pressing issues you need to address quickly. Blanchette gives the example of an entrepreneur who—three weeks after having purchased a business—had to decide whether to renew a $100,000 advertising contract. “This is one of those moments when your high-level analysis of the business will help you make a better informed decision.”

4. Focus on your strategy for the business

When buying an established business, you are also buying the previous owner’s way of doing things. “It doesn’t necessarily mean it’s the right or the best way of doing things just because someone did it that way for 50 years,” Blanchette says.

Consider how you want to run your new business and then build an action plan. As well, start working on a two-year, month-to-month cash flow forecast with the new expenses built in, such as loan payments for buying the business, increased salary levels and the cost of what you plan to change.

5. Leave your door open

Ultimately, buying a new business and integrating it with your existing one is a complex exercise in change management. Don’t be surprised if people still have questions after a few months or are resisting change. Your best ally to fight uncertainty and win people’s trust is to communicate often and ensure you’re being transparent, open and approachable.
 
For more information on the above, please contact HazloLaw Founder & Business Lawyer, Hugues Boisvert at 613-747-2459 x 304 or at hboisvert@hazlolaw.com

The capital dividend account (CDA) is an important tax planning device for private Canadian corporations and their shareholders.

The capital dividend account (CDA) is an important tax planning device for private Canadian corporations and their shareholders. The amount of the CDA can be paid out tax-free to Canadian shareholders as a “capital dividend".

The CDA is a notional account that is calculated at any point in time and is composed of various items. The principal component is the “untaxed half” of a corporation’s capital gains, net of the non-deductible half of its capital losses. Any capital dividend that the corporation pays out reduces the CDA by the amount of the dividend.

For example, suppose a corporation with no CDA sells property on December 1 for a $1,000 capital gain. Immediately after the sale, the corporation's CDA will be $500, and this amount can be paid out tax-free to shareholders as a capital dividend.

Suppose the corporation does not pay out the above capital dividend, but sells property on December 10 for a $1,300 capital loss. The CDA will be reduced by $650 so, immediately after the sale on December 10, the CDA balance will be reduced to negative $150.

A negative CDA balance does not trigger any tax. However, it remains negative, and until the corporation realizes enough capital gains (or other items as per below) to bring the CDA balance back to a positive amount, no tax-free capital dividends can be paid out.

Capital gains are not the only way the CDA can increase. The CDA definition is extremely complex, and includes capital dividends received from other corporations, certain life insurance proceeds and certain amounts from eligible capital property dispositions (e.g. goodwill).

Consideration should be given to paying out capital dividends before capital losses are realized.  Such planning will allow shareholders to access corporate funds tax-free before the CDA is reduced.  For example, using the above example, the corporation can pay out $500 tax-free, after the sale on December 1 through to immediately before the sale on December 10. After the sale on December 10 it cannot pay out any capital dividend. Paying out $500 prior to the sale on December 10 would provide the shareholders with $500 tax-free and later leave the corporation with a $650 negative balance in its CDA.  This is a better result than no tax-free money to the shareholders until future realized taxable capital gains exceed $300.

If, over time, capital gains exceed the capital losses, this strategy provides tax-free money earlier rather than later, but the total amount will be the same. The time value of money is reason enough to try to pay out positive CDA balances before they are ground down. However, if the corporation will not have future capital gains to offset future capital losses, there is a permanent benefit, as otherwise no capital dividend could be paid out at all.

For example, corporations are often dissolved after a shareholder dies as part of the post-mortem planning process. Selling the "winners" before liquidating the "losers", and paying out the CDA in between, can yield substantial permanent tax savings.

For more information on the above, please contact HazloLaw, Founder & Business Lawyer, Hugues Boisvert at 613-747-2459 begin_of_the_skype_highlighting 613-747-2459 FREE  end_of_the_skype_highlighting x 304 or hboisvert@hazlolaw.com

Do you need a Business Number (BN)?

If you need at least one CRA business accounts (RT, RP, RC or RM), you will need a BN.

However, before you register for a BN, you need to know a few things about the business you plan to operate. For example, you should know the name of the business, its location, its legal structure (sole proprietorship, partnership, or corporation), and its fiscal year-end. You should also have some idea of what the sales of your business will be. Without this information, you will not be able to complete Form RC1, Request for Business Number (BN).

If you are registering for a GST/HST account, it is important that you provide all of the information required to register. If you register for the GST/HST and your business claims a net tax refund, the refund may not be paid if this information is inaccurate or incomplete.

Notes

If you are a sole proprietor or a partner in a partnership, you will continue to use your social insurance number to file your income tax and benefit return, even though you may have a BN for your GST/HST, payroll deductions, and import/export accounts.

If you decide to incorporate, you will need a BN to pay your corporation income tax and to make instalment payments to your corporation income tax account.

For more information about the BN, go to Business Number registration, see Booklet RC2, The Business Number and Your Canada Revenue Agency Program Accounts, or call 1-800-959-5525.

For more information on the above, please contact HazloLaw Founder & Business Lawyer, Hugues Boisvert at 613-747-2459 x 304 or at hboisvert@hazlolaw.com

Did you know....as a tradesperson, you can save on the tools you buy!

Did you know?

 

If you are an employed tradesperson, you may be able to deduct up to $500 of the cost of eligible tools you bought in 2013.

You may also be able to get a rebate of the Goods and Services Tax/Harmonized Sales Tax (GST/HST) you paid. For more information, see Employee GST/HST rebate.

Important facts

 

An eligible tool is a tool (including associated equipment such as a toolbox) that:

• you bought to use in your job as a tradesperson and was not used for any purpose before you bought it;
• your employer certified it as being necessary for you to provide as a condition of, and for use in, your job as a tradesperson; and
• is not an electronic communication device (like a cell phone) or electronic data processing equipment (unless the device or equipment can be used for the purpose of measuring, locating, or calculating).

For more details on how to calculate the deduction for tools, go to www.cra.gc.ca/trades.

Should You Incorporate Your U.S. Subsidiary In Delaware?

Should You Incorporate Your U.S. Subsidiary In Delaware?

- Delaware is a favoured state for incorporation for a number of reasons:

- It has historically offered the best franchise tax rules and has been the most pro-management.

- Delaware’s General Corporation Law is one of the most flexible business formation statutes in the United States.

- Delaware’s Court of Chancery uses judges instead of juries. Since cases are heard before judges, decisions are issued as written opinions that companies can rely on, allowing them to avoid litigation.

- It costs very little to incorporate in Delaware.

Delaware does not require director or officer names to be listed in the formation documents, thus providing a level of anonymity.

However, if you incorporate in Delaware but do business in a different state (i.e., maintain an office or warehouse, or hire employees or a sales force, among other things), you will have to register to do business in that state as a “foreign corporation.” Therefore, not only will you have to pay the filing fees for the state in which you are transacting business, but also Delaware filing fees. For example, if your Delaware company has a business office in Los Angeles, you must register the company to do business with the California Secretary of State’s Office and file a California Statement Of Designation Of Foreign Corporation, along with paying a filing fee of $100.

Together with the additional extra filing fees, incorporating in Delaware will require that you have a registered agent for service of process in Delaware, which will cost you additional fees.

If you incorporate in Delaware, you will not only have to pay the annual franchise tax in the state in which you are doing business, but also in Delaware. For example, if your company is headquartered in Texas, but incorporated in Delaware, each year you will not only have to pay the annual Texas Franchise Tax, but also the annual franchise tax in Delaware.

Also, incorporating in Delaware, but doing business in a different state will mean that you will have a second layer of reporting requirements.  For example, if you incorporate your company in Delaware, but are headquartered in New York, you would have to comply with the annual reporting requirements in both states.

For these reasons, not every company should incorporate in Delaware.  Instead, you should make sure that the benefits of incorporating in Delaware outweigh the extra expense and time of being incorporated there instead of in whichever state your company is actually transacting business.

For more guidance on where to incorporate your US subsidiary, please contact US & Canadian Business Lawyer, Renate Harrison at 613-747-2459 x307 or at rharrison@HazloLaw.com

What is a Personal Services Corporation??

We would like to share an excellent article written by Susan Ward from About.com
 
Bluntly, a designation by the Canada Revenue Agency (CRA) that you don't want, because a personal services corporation (a.k.a. personal services business) is not allowed to claim any of the standard business expenses, including the Small Business Deduction..
 
Technically, a personal services corporation is:
 
"a business that a corporation carries on to provide services to another entity (such as a person or a partnership) that an officer or employee of that entity would usually perform" (T4012 – T2 Corporation Income Tax Guide, Chapter 4, Canada Revenue Agency).
 
The CRA Guide goes on to explain that the person providing those services on behalf of the corporation is called an incorporated employee.
 
Right away, your mental alarm bells should be dinging like mad, because as you know, this is the basic tax divide, employee versus business person. Business people (whether sole proprietorships or corporations) have many more potential tax deductions available to them than employees.
 
The Canada Revenue Agency generally considers four issues to determine whether a person is an employee or an independent contractor:

1. Control
2. Ownership of tools
3. Chance of profit/risk of loss
4. Integration

Are You a Contractor or an Employee? provides detailed explanations of each of these points.
 
But these may be moot in terms of determining whether or not a corporation is deemed to be a personal services business.
 
It appears that all that is required for a small corporation to be considered a personal services corporation is:
 
1) that the person performing the services (you) or any person related to you, is a specified shareholder of the corporation (a person who owns at least 10% of the issued shares of any class of capital stock in the corporation or a related corporation, directly or indirectly, at any time of the year);
 
2) that you would "reasonably be considered an officer or employee of the entity receiving the services" if not for the existence of the corporation.
 
You can see, just from reading this last pair of sentences, how difficult it could be for a person with a corporation that has a single shareholder who is doing business with one company to prove otherwise.
 
From the government's point of view, just calling an employee something else doesn't mean they’re not actually an employee – especially when they're doing exactly what an employee would do.
 
Corporations who are suddenly deemed to be personal services corporations not only lose their favorable tax advantage of being able to claim business expenses, but also become ineligible for the Small Business Tax Deduction, losing their favorable tax rate on the first $500,000 of active income.
 
For more information on the above, please contact HazloLaw Founder & Business Lawyer, Hugues Boisvert at  hboisvert@hazlolaw.com
 

Are you self-employed? Important Tax Facts

Did you know?

As a self-employed individual, you and your spouse or common-law partner have until midnight on Monday, June 16, 2014, because June 15, 2014 falls on a Sunday, to file your 2013 income tax and benefit return. But don’t forget—you must pay any balance owing for 2013 on or before April 30, 2014, regardless of your filing date.

Important facts

• If you earned self-employment income from a business you operate yourself or with a partner, you have to report it. For more information, go to www.cra.gc.ca/selfemployed.
• Keep thorough records if you own a business or are engaged in a commercial activity. The records have to give enough detail to determine the taxes you owe and support the benefits you are claiming, and they must be supported by original documents.
• If you receive income that has no tax withheld or does not have enough tax withheld for more than one year, you may have to pay tax by instalments. This can happen if you receive rental, investment, or self-employment income, certain pension payments, or income from more than one job. For more information, go to www.cra.gc.ca/instalments.

Transition Planning 101 by BDC

Everyone who operates a company will eventually reach a point when they will have to leave the business because of age or health concerns. This could mean retirement, sale or simply winding up the firm and closing it down.

Collectively these are known as exit strategies, and every business owner should have one. Yet many will exit their companies without a clear plan. This may be largely due to the fact that entrepreneurs are more focused on starting and building their businesses than on leaving them.

The result? When business owners are ready to pass the torch, they may not get the full value of their company if they're selling to outside interests. Or if it's a family transfer, they could end up leaving family members with unmanageable problems instead of the inheritance they had hoped to bestow.

You can always make better business decisions by planning ahead. If you start to think about succession planning early, you can take a more objective look at your future needs and avoid last-minute decisions. Although unique to every business, a succession plan consists of a series of basic steps, such as setting your financial goals, determining legal requirements and establishing your objectives with your family or successor. It is often a complex and sometimes emotional process for a business owner.

"One of the most important steps is first knowing all the options available to you for exiting," says Calvin Hughes, a BDC consultant. "It's important that you feel active and engaged in the process. But at the same time, you have to accept that you're letting go of your business."

Here are some of the most common exit strategies used today.

Family transfer

If transferring your business to a family member is a possibility, it's key to ensure that your family is fully aware that you're planning a succession and to give them clear time parameters. A part of this, says Hughes, is ensuring that family members get a chance to voice their concerns and interest in the business. One of the most obvious advantages of opting for a family transfer as an exit strategy is that your family will benefit from your business legacy. As well, family members who are already involved in your business may require less coaching or involvement.

Management buyout (MBO)

The purchase of a company by its management team has several advantages for entrepreneurs. It can ensure uninterrupted continuity because the new owners already have invaluable experience with the company. For this reason, your company is more likely to keep its existing clients and business partners.

Selling to outside interests

Selling a business to outside interests is the most popular exit strategy because it's typically "more definitive and involves fewer variables than a family succession," says Hughes. Entrepreneurs should appreciate that the price they receive for their company might be more or less than the appraised market value. "While many business owners tend to overestimate the pricing of their businesses, a surprising number may underestimate it. For example, if your company becomes part of a much larger venture, then the value may go up accordingly," he says. A large corporation that is buying out a business, for instance, may be able to do more than you have with your business and therefore willing to pay a higher price.

Getting the full value for your business

Whether you're passing the company to a family member or selling it to outside interests, keep in mind that you will need a business valuation that establishes a realistic and fair dollar figure for your business. "Putting that dollar value on a business takes time, and you need to have a specialist who can look at your assets, liabilities and goodwill with an objective viewpoint," says Hughes, adding that he has seen too many cases of entrepreneurs who got caught at the last minute and weren't able to get the full value they had envisioned.

For entrepreneurs who choose selling as an exit strategy, Hughes feels they should also be aware that buyers are increasingly more sophisticated and demonstrate more business savvy. "Smart buyers will certainly delve more into your business history. So in turn, you have to anticipate this and be sure that you're armed with the right figures and backup material to get the value that you're looking for. You don't want to find yourself in a vulnerable position," he stresses. Company owners should keep in mind that the value of a business is not just based on financial statements. "The number of customers you have, for example, could also be a determining factor," he says.

Planning ahead

 "Planning ahead, at least 18 months to 2 years, helps entrepreneurs make better business decisions," he adds. The earlier you start, he believes, the more time you can take an objective look at your company and where it will be down the road. Succession planning takes time, Hughes stresses, because of many complex issues such as business valuations, tax implications, family matters and coaching successors.

One of the first steps in good planning is to get a lawyer involved at least 12 months in advance. Getting legal help as early as possible in the process can help you avoid frustrations down the road such as delays, extra expenses and ultimately a deal that doesn't meet your expectations.

For more information on the above, please contact HazloLaw Founder & Business Lawyer, Hugues Boisvert at 613-747-2459 x 304 or hboisvert@hazlolaw.com