Here at MoneyTalk, we’d like to think we’re pretty savvy when it comes to money. But the truth is, every once in a while we learn new things too, and come across some surprising aspects of finance.

Planning for what will happen to your business once you are no longer running it (or “business succession”) is one of those areas of advanced financial planning that can be hard for many business owners to wrap their heads around. It involves estate planning, a working knowledge of capital gains and tax strategies, good communication, and some long-term thinking. But with the help of a business succession professional, you may land on the right plan for your business, and help support those who want to see it live on for years to come.

We’ve pulled together six of the most valuable lessons we’ve learned about business succession, and hope it will spur you to start making your own plans.

Lesson 1: Business owners need an exit strategy

Whether you are thinking about selling, helping the next generation take the reins, or completely unsure what you’ll do, it’s never too early or too late to start planning for your eventual retirement. Tom Deans is an Intergenerational Wealth Expert and Author of Every Family’s Business: 12 Common Sense Questions to Protect Your Wealth, who says that business owners are retiring in record numbers without any plans in place. He says that can cost the business money, hurt the success of the business, and risk family harmony.  Watch the full interview here.

Lesson 2: Business succession takes time, communication and professional help

Business succession isn’t really a DIY thing, and in fact it can often take a team of professionals to help you along the way. But you can start by communicating your wishes to your family and asking them how they see the future of the business. Knowing whether they are interested in the family business and how involved they want to be may help you to make important decisions about a sale or transition. John Nicolls, a Vancouver-based Business Succession Advisor with TD Wealth, suggests reading this checklist to test your readiness for retiring from your business.

Lesson 3: In estate planning what’s equal isn’t necessarily what’s fair

If you think you can just arrange to split your business and assets equally among your children, you may be in for a surprise. How different assets get taxed at death, and the diverse needs and wishes of your beneficiaries, can often make that hard to achieve. Instead, consider what’s fair: You might want to think about which of your loved ones has been most involved in the business, and the role they wish to play down the road. For example, you may wish to transition the business to one heir and have a life insurance policy that pays out to another. In this classic MoneyTalk article, Domenic Tagliola, Tax and Estate Planner with TD Wealth, shares some ways to help inject fairness into your estate plans.

Lesson 4: Consider an estate freeze

Once retirement is on the horizon, an estate freeze can allow a business owner to gradually transfer ownership to the next generation while also dealing with tax concerns proactively. It’s a tactical manoeuvre for business owners that swaps common stock for preferred shares, and issues those common shares to beneficiaries. This, in essence, can reduce the capital gains tax owing. Georgia Swan, Tax and Estate Planner at TD Wealth, discusses estate freezes and how you might execute this strategy in this MoneyTalk interview.

Lesson 5: Consider an earn-out if you are thinking of selling

An earn-out can be a valuable tool in your negotiation toolbox when you are selling your business. It’s essentially a contractual provision that provides a percentage of gross earnings over a specified period of time. This could mean less money up-front from your buyer, but continued income for you down the road. Georgia Swan, Tax and Estate Planner at TD Wealth, looks at earn-outs here and explains how and when they may work for your business.

Lesson 6: Good estate planning is imperative for business owners

A simple Will and Powers of Attorney often aren’t enough for business owners when it comes to passing down their assets. A lack of proper estate planning could mean thousands of dollars, sometimes more, in taxes owed upon death, and it could leave your loved ones scrambling to manage the bill. The owners of Wilson’s Lifestyle Centre in Saskatoon shared their story with us about how their father’s passing unintentionally opened a can of worms when it came to transitioning the family business. Tannis Dawson, High Net Worth Planner with TD Wealth, offers some helpful things business owners can consider to prevent added stress.

Denise O'Connell


MoneyTalk Team