Launch Lab CEO Michael Mann: Succession and Estate Planning

As promised in my last blog, the following are answers related to succession and estate planning:

If you own a company or have an estate with many assets you definitely need to seriously consider putting together a Plan.

If you’re an individual with the typical mix of assets (eg. a house, house contents, car, etc) then you should definitely have a will designating how your assets should be distributed upon your death.

A proper Plan is more critical if you own a company to determine who would run it and what you would like to see happen to your company if you were to become incapacitated or have an untimely death. You are the best person to make that determination.

To put a value on your company is more of an art than a science. It is a relatively easy task for an accountant to assess your company’s book value by studying the financial statements past, present, and the realistic projections for the near future. However, assessing the intangible “goodwill” value is quite another task. Goodwill is something that has to be viewed realistically by you, the owner, and your advisors including (where necessary) a business valuator.

It is very possible for an employee or employees to purchase your company with little or no money. If the seller wants to exit, the new owners can pay him or her over time using the profits from the company; which will be enhanced by the fact that the old owner’s salary and expenses are no longer being paid to him or her. There are also tax advantages to the seller receiving the money over a 5-year period of time instead of receiving all the money for the sale at one time.

If the owner of the company wants to exit and sell their company to an employee(s) or heirs sometime in the future, it is possible to value the company and freeze it at today’s price utilizing the proper estate planning methods. The employees could buy in today and participate in the future growth of the company.

Depending upon your facts and needs, permanent insurance (such as universal life or whole life) can be good insurance because it stays with you your entire life. The cost of Term life insurance goes up significantly as you get older, and most people opt not to pay the higher premiums, potentially being left with no insurance in their old age (but they may not need or require it at that time). In general, the pay out upon death of a life insurance policy is not taxable however there may be situations where the proceeds from the life insurance policy are taxable.

The best way to sell your company is to a key employee or employees, to your competition, or to a strategic buyer that you know. If you want to put your company up for sale to the general public this may prove to be a much more difficult task. Relative to the United States, there are not a lot of Firms in Canada that specialize in selling companies. In this case it would be good advice to consult your accountant and business lawyer.

This information has been corroborated by our corporate partner MNP whose services have been approved by Launch Lab as providing effective value added services that may be of benefit to your business. Their in-depth suite of business services combines industry expertise, market knowledge and professional insight to help businesses achieve their goals, including:

• Assurance & Accounting, Tax, Consulting

• Corporate Finance, Enterprise Risk Services, Investigative & Forensics

• Corporate Recovery & Insolvency, Valuation & Litigation Support, Succession Planning

To contact a representative at MNP, please email [email protected].