Of the 1.12 million private sector employers in Canada, approximately 98 per cent of them have less than 100 employees. They contribute more than 30 per cent to
Canada's GDP and in 2011, they employed five million people. That's 43 per cent of the private sector labour force! Between 2001 and 2011 small businesses created 43 per cent of all jobs! That's the good news. The bad news is that many of these businesses do not have plans in place in event of disagreement, retirement, disability or death of their owners. Family owned businesses face additional complications when trying to be fair in transitioning to the next generation.
It is clear that small businesses must start thinking like big businesses. I see four key areas of improvement: 1. Set up your business to be "turnkey." Like many teenagers, one of my first jobs was working at McDonald's. From day one, none of my training was left to chance. It was all hard-coded into a set of procedures manuals. Most small businesses out there could increase their value exponentially by taking good notes the next time they visit the Golden Arches. This turnkey model will also form the foundation for other business decisions.
2. Structuring the organization tax-effectively. To take advantage of tax incentives like the Small Business Deduction, the Capital Gains Exemption and preferential treatment of dividend income, small business owners need to spend time with their tax and legal advisors.
3. Shareholder agreements. Shareholders have common economic interests. They also encounter potential conflicts when they disagree, want to retire, get disabled or die. Proper shareholder agreements are designed to navigate through these opportunities and obstacles in a way that is fair. Because they are often thrown together quickly upon start-up, it is important to review them periodically and as the business changes.. 4. Risk management. Because shareholder agreements deal with the possibility of disability or death of an owner, the business needs to assure that it has the cash to purchase the shares from a disabled owner or from the estate of a deceased shareholder. Since it is either impossible or foolish for most businesses to carry large amounts of idle cash, it makes better sense to assure there is enough life and disability insurance in place to make good on the agreement.
This is not nearly as complicated as it sounds if you bring together your team of financial, tax and legal advisors to help you out. Your business is worth it! The opinions expressed are those of Richard Vetter. Richard is a Certified Financial Planner and owner of WealthSmart Financial Group in Richmond, www.wealthsmart.ca
