Tag Archives: Retirement

Four Traps To Avoid When An Acquirer Comes Calling

Republished with permission from Built to Sell Inc.

You may be eager to sell your business, and happy to have an acquirer at your doorstep, but what’s it like when an acquirer starts looking inside every corner of your business?

Price Squeeze

Most professional acquirers will have a checklist of questions – both objective and subjective – that they need answered before getting serious about buying your company.

Examples of objective questions include:

  • When does your lease expire and what are the terms?
  • Do you have consistent, signed, up-to-date contracts with your customers and employees?
  • Are your ideas, products and processes protected by patent or trademark?
  • What kind of technology do you use, and are your software licenses up to date?
  • What are the loan covenants on your credit agreements?
  • How are your receivables? Do you have any late payers or deadbeat customers?
  • Does your business require a license to operate, and if so, is your paperwork in order?
  • Do you have any litigation pending?

Then they’ll try to get a subjective sense of your business, including figuring out just how integral you are personally to the success of your business. And that requires some investigative work as well as some tricks of the trade. For example:

Trick #1: Making last-minute changes

By asking to make a last-minute change to your meeting time, an acquirer gets clues as to how involved you are personally in serving customers. If you can’t accommodate the change request, the acquirer may probe to find out why and try to determine what part of the business is so dependent on you that you have to be there.

Trick #2: Checking to see if your business is vision impaired

An acquirer may ask you to explain your vision for the business, which is a question you should be well prepared to answer. However, he or she may ask the same question of your employees and key managers. If your staff members offer inconsistent answers, the acquirer may take it as a sign that the future of the business is in your head.

Trick #3: Asking your customers why they do business with you

A potential acquirer may ask to talk to some of your customers. He or she will expect you to select your most passionate and loyal customers and will therefore expect to hear good things. The customers may be asked a question like “Why do you do business with these guys?” The acquirer is trying to figure out where your customers’ loyalties lie. If your customers answer by describing the benefits of your product, service or company in general, that’s good. If they respond by explaining how much they like you personally, that’s bad.

Trick #4: Mystery shopping

Acquirers often conduct their first bit of research before you even know they are interested in buying your business. They may pose as a customer, visit your website, or come into your company to understand what it feels like to be one of your customers.

Make sure the experience your company offers a stranger is tight and consistent, and try to avoid being personally involved in finding or serving brand new customers. If a potential acquirer sees you personally as the key to wooing new customers, they’ll be concerned that business will dry up when you leave.

You may not be expecting an acquirer any time soon, but it’s never too early to ask yourself the questions an acquirer would be asking you – and your employees and customers – if he or she was thinking of buying your business.

Why not find out now if your business is sellable?

This free online tool is the only no-risk step you can take to determine if your business is ready to get full value. Fast-track your analysis by taking advantage of this free, no-obligation free online tool.

This Sellability Score you instantly receive is a critical component to any business owner’s complete financial plan and is something that, until now, we have only made available to existing clients.

However, we recognized that there is value in knowing in advance of working with a financial planner whether or not your largest asset is ready to be exchanged for your retirement nest egg. Our view is that you are better to learn more about your businesses sellability today and find out how your business scores on the eight key attributes so that you can ensure you obtain full value.

If your business part of your retirement plan, finding out your sellability score will be the best 10 min. you could ever spend working “on” your business.

Take the Quiz here: The Business Sellability Audit

Sellability ScoreFor more free information on Creating A Business Owner’s Dream Financial Plan, you can listen to a free, eight part series we did exclusively for business owners. The show is also available to subscribe to for free via iTunes.

8 Questions You’ll Be Asked When Selling Your Business

Republished with permission from Built to Sell Inc.

One of the most intimidating aspects of selling your business can be facing the barrage of questions during the various management presentations you’ll be doing for potential acquirers. Be prepared to be grilled on all facets of your operations.

Of course every meeting will be different, but here are some questions you can expect to be asked when you’re in the hot seat:

1. Why do you want to sell your business?

It’s a slippery question because if your business truly does have a bright future—and you want the buyer to believe that’s the case—the obvious question is:  “Why do you want to sell it, and why do you want to sell it now?”

2. What is your cost per new customer acquired?

The potential acquirer wants to find out if you have a predictable, economical and scalable formula for finding new customers.

3. What is your market penetration rate?

The acquirer, with an eye to future growth, is trying to understand how big the potential market is for your product or service and what part of the field remains to be harvested.

4. Who are the critical members of your team?

The acquirer wants to understand the breadth and depth of your team and determine specifically which members need to be motivated and retained post-purchase.

8 Questions You’ll Be Asked When Selling Your Business5. Who buys what you sell?

Strategic buyers will be searching for any possible synergies between what you sell and what they sell. The more you know about your customer demographics, the better the buyer will be able to assess the strategic fit. If your customers are other businesses, a buyer will want to know what functional role (e.g., training manager, VP of sales and marketing) buys your product or service.

6. How do you make what you sell?

This question is asked in an effort to size up the uniqueness of your formula for creating your product or service. Potential buyers want to know if you have any proprietary systems that would be hard for a competitor to replicate. For various reasons, they will also want to understand if the creation of your product or service is dependent on any one person.

7. What makes your product truly unique?

A buyer is trying to understand how big the moat is around your business and what kind of protection it offers from competitors who may decide to compete with you in the future. What have you done to safeguard yourself against the competition?

8. Can you describe your back-office setup?

Most buyers will try to understand how easily they can integrate your back office into their operation. They’ll want to know what bookkeeping and billing software you use, how customers pay, and how you pay suppliers.

Of course this is not an exhaustive list, but it’s a good start when you’re preparing to represent your company to your potential buyers.

Why not find out now if your business is sellable?

This free online tool is the only no-risk step you can take to determine if your business is ready to get full value. Fast-track your analysis by taking advantage of this free, no-obligation free online tool.

This Sellability Score you instantly receive is a critical component to any business owner’s complete financial plan and is something that, until now, we have only made available to existing clients.

However, we recognized that there is value in knowing in advance of working with a financial planner whether or not your largest asset is ready to be exchanged for your retirement nest egg. Our view is that you are better to learn more about your businesses sellability today and find out how your business scores on the eight key attributes so that you can ensure you obtain full value.

If your business part of your retirement plan, finding out your sellability score will be the best 10 min. you could ever spend working “on” your business.

Take the Quiz here: The Business Sellability Audit

Sellability ScoreFor more free information on Creating A Business Owner’s Dream Financial Plan, you can listen to a free, eight part series we did exclusively for business owners. The show is also available to subscribe to for free via iTunes.

Jennifer Jacobs – Living Benefits Update

jennifer jacobsIn this video, I speak to Jennifer Jacobs, President of LTCI Consulting Inc. to chat about the expectation of changes of living benefits / life insurance, in terms of what we see in the market place and what we can do to take advantage on what is available today.

IRONSHIELD Financial Planning’s “Fly On The Wall” update call.
These calls are recorded by Scott Plaskett and allow you to get a behind-the-scenes look at one of his professional update calls. Watch and listen as a “fly on the wall” and get some of the most valuable information you will find on the Internet.

7 things to do before signing a Letter of Intent to sell your business

Republished with permission from Built to Sell Inc.

time to sellYou may be years away from selling your business, but it’s never too early to understand what the process involves.

If you have ever promised your child a treat in return for good behaviour, you know all about negotiating leverage. When selling an attractive business, you also have leverage—but only up to the point where you sign a letter of intent (LOI), which almost always includes a “no shop” clause requiring you to terminate discussions with other potential buyers while your newfound “fiancé” does due diligence. 

After you sign the LOI, however, the balance of power in the negotiation swings heavily in favour of the buyer, who can then take their time investigating your company.  At the same time, with each passing day, you will likely become more psychologically committed to selling your business. Savvy buyers know this and can drag out diligence for months, coming up with things that justify lowering their offer price or demanding better terms.

With your leverage diminished and other suitors sidelined, you are then left with the unattractive options of either accepting the inferior terms or walking away.

Here are seven things you can do—before you even put your business up for sale, and before signing an LOI—to minimize the chances of your deal dragging on for months and becoming watered down:

1. Make sure your customer contracts have “successor” clauses.

Have customers sign long-term, standardized contracts, including a clause stating that the obligations of the contract survive any change in company ownership. 

raving fan2. Nurture and prepare a group of 10 to 15 “reference-able” customers.

Acquirers will want to ask your customers why they do business with you and not your competitors. Before you sign the LOI, cultivate a group of customers to act as references.

3. Ensure your management team is all on the same page.

During due diligence, acquirers will want to interview your managers without you in the room. They want to find out if everyone in your company is pulling in the same direction. 

4. Consider getting audited financials.

An acquirer will have more confidence in your numbers and will perceive less risk if your books are audited by a recognized accounting firm.

5. Disclose the risks up front.

Every company has some risk factors. Disclose any legal or accounting hiccups before you sign the LOI. 

6. Negotiate down the due diligence period.

Most acquirers will ask for a period of 60 or 90 days to complete their due diligence. You may be able to negotiate this down to 45 days—perhaps even 30 with some financial buyers.  If nothing else, you’ll alert the acquirer to the fact that you’re not willing to see the diligence drag out past the agreed-to close date.

7. Make it clear there are others at the table.

Explain that, while you think the acquirer’s offer is the strongest and you intend to honour the ‘no shop’ agreement, there are other interested parties at the table.

If you take all seven of these steps, you will protect the value of your business as the balance of power in the negotiations to sell your company swings from you to the buyer.

Why not find out now if your business is sellable?

This free online tool is the only no-risk step you can take to determine if your business is ready to get full value.  Fast-track your analysis by taking advantage of this free, no-obligation free online tool.

This Sellability Score you instantly receive is a critical component to any business owner’s complete financial plan and is something that, until now, we have only made available to existing clients.

However, we recognized that there is value in knowing in advance of working with a financial planner whether or not your largest asset is ready to be exchanged for your retirement nest egg.  Our view is that you are better to learn more about your businesses sellability today and find out how your business scores on the eight key attributes so that you can ensure you obtain full value.

If your business part of your retirement plan, finding out your sellability score will be the best 10 min. you could ever spend working “on” your business.

Take the Quiz here: The Business Sellability Audit

Sellability ScoreFor more free information on Creating A Business Owner’s Dream Financial Plan, you can listen to a free, eight part series we did exclusively for business owners.  The show is also available to subscribe to for free via iTunes.

 

Three Pillars To Successful RRIF Investing

When building an investment portfolio for retirees, there are three criteria that when met, will provide you with the highest probability of success.

Now, most articles being written today about investing for income are all focusing on the income distributions, yield and consistency of both.  The problem is that if you don’t apply these three pillars to successful RRIF investing to those strategies, you will be accepting more risk than is appropriate for your age and stage of life because no matter how you slice it, when you are investing in a low interest rate environment, the only way to increase the yield or distributions are to take on more risk.  Plain and simple.

The problem with this approach is that the risk is hidden and will only reare it’s ugly head when you can’t afford it to.  Focusing on these three pillars to successful RRIF investing will provide you with an investment solution that is providing you with the highest probability of success to protect and preserve your RRIF portfolio.

  1. Quality Management

How do you rate an investment manager?  If your answer is by historical rate of return then you are potentially setting yourself up for failure.  As I always say, live by return, die by return.  Don’t focus solely on return, focus on consistency of return and you’ll be more inclined to stick with your discipline as opposed to make an emotional decision at the wrong time in the economic cycle.

Here is an example of how to determine if your investment manager is providing you with quality management.  (NOTE: I will not be promoting an investment solution in this post, only the methodology for you to use in order to assess your own portfolio.  However, these are actual audited numbers for one of our favoured Canadian investment counsellors – they are not made up)

  1. Availability of Tools To Those Managers
  2. Attention To Fees

5 RRIF Strategies For Retirees

RRIF StrategiesLike many Canadians approaching retirement, you probably have an RRSP that you have been contributing to and managing for years.  However, that magical date where you turn 71 and have to convert your RRSP to a RRIF is quickly approaching.   Now you need to know more about Registered Retirement Income Fund (RRIF) strategies as opposed to savings strategies that have been directing the management of your Registered Retirement Savings Plan (RRSP).

Here is what you need to know so that you can take full advantage of a RRIF?

5 RRIF Strategies For Retirees

1. Proper RRIF Wealth Accumulation Strategies

Your investment plan doesn’t need to change drastically just because you are converting your RRSP to a RRIF.  But, there is one critical trait that all of the investments in your RRIF need to share to protect you from a negative experience – accessability.

I’ll get into the rules pertaining to RRIFs in a minute but always keep in mind that you will need to make sure that all of the investments in your RRIF are easily converted to cash if you want to use the RRIF withdrawal as a retirement income.

Investing in investment solutions that are somewhat illiquid or carry redemption penalties or that can attract tax-clawbacks are investment you will want to avoid in your RRIF.

Here are some examples of investments to avoid in your RRIF:

    • Labour Sponsoured Investment Funds – a redemption from these types of funds prior to the claw-back period for the tax credits will attract a very nasty tax bill.
    • Private Equity – this asset class is a lot less liquid and therefore if you need income from your RRIF and can’t sell your shares of private equity, you may be strapped for cash.
    • Deferred Sales Charge (DSC) Mutual Funds – if you’ve amassed over $100,000 in liquid wealth and you are still investing in DSC mutual funds, you need to reconsider your investment plan.  These investments carry with them steep redemption fees and if you are required to redeem out of these funds to meet your cash requirements, you will be forced to incur this steep penalty fee.

2. What are the rules around converting to a RRIF?

As you approach retirement, it is important to know the rules surrounding the conversion of an RRSP to a RRIF.

In essence, the rules state that you will need to convert your RRSP to a RRIF by December 31st of the year in which you turn 71.

So, what this entails is completeing and signing a new application form with the company who you will be opening up the RRIF with (in most cases it’s the same company who you hold your RRSP with) to open up a RRIF account and then preparing and signing a Transfer Authorization For Registered Investments Form to transfer your RRSP to your RRIF either “in kind” or “in cash”.  In Kind transfers are simply the transfer of your portfolio “as is” and an in cash transfer is as it suggests, a transfer of the value of the RRSP portfolio in cash.

These two forms are required because they will allow you to transfer the funds from your RRSP to your RRIF on a tax-sheltered basis.  NOTE: If you redeem the funds from your RRSP expecting to be able to then deposit them into a RRIF, you will be taxed on the RRSP withdrawal and will not be able to contribute to the RRIF because new contributions are not allowed to RRIFs.

This takes care of the transfer of your RRSP to your RRIF but you haven’t yet received your first payment.  So, on the RRIF Application you will indicated how and when you would like to receive your first payment.

The rules state that a minimum amount of income needs to be withdrawn and de-registered from your RRIF each year.  This minimum amount (known as a RRIF Minimum) is calculated each year by the RRIF administrator.

If your goal is to defer the income from coming out of your RRIF for as long as possible then here is what you can do.

    • Convert your RRSP to a RRIF by December 31st of the year you turn 71.
    • Request an annual withdrawal from your RRIF for your RRIF Minimum.
    • Request your annual withdrawal be paid to you in December of the first year you need to make your withdrawal (i.e. the next year).  This will allow you to receive your first withdrawal at the end of the year you turn 72 – a full extra year of tax-sheltered growth.
    • If your spouse is younger than you, elect to have the RRIF Minimum amount calculated based on their age which in turn will reduce the amount that is required to be withdrawn.

investing3. What are the best investment practices to investing your RRIF?

I touched on it briefly earlier in the post but in general, your investment plan does not need to change very much when you convert to a RRIF from the plan you were following in your RRSP.

Think about it this way.  What is the most appropriate investment profile for an investor who has a 15 – 25 year time horizon.  it’s probably not too far off of the investment risk profile you are currently using in your RRSP.

But, here are some important things to consider:

    • Are you maximizing your plans “tax efficiency”?  Often times people have more than one registered plan (eg: Spousal RRSP, Locked-In RRSP, Regular RRSP, etc…).  Having multiple plans can make it more challenging to manage as each plan is seperate from one another.  Add to the proplem the fact that you may also have non-registered accounts that are not tax-sheltered and you have the potential for creating a dogs breakfast of a portfolio.
    • Take a wholeistic approach to the management of all of your plans to ensure tax efficiency.  By determining the overall asset mix for your overall plan, you can place tax innefficient investments (bonds and GIC’s) in your registered accounts and tax efficient investments (dividend producing or capital gain generating securities) in your non-registered accounts.  That way when a dividend or capital gain is realized in your portfolio, you receive the tax efficiency that these investments offer and when an interest payment is made from the fixed income side of your portfolio (i.e. bonds and GICs) this innefficient form of income is tax sheltered within the plan.
    • Finding investment solutions that truly allow you to manage your overall plan from this high level can often times be difficult.  Retail mutual funds often times don’t allow for the level of tax efficiency needed to obtain a high level of tax savings.

taxes4. How should you schedule your RRIF withdrawal?

There is a lot of debate as to whether you should take a monthly withdrawal, quarterly withdrawal, semi-annual withdrawal or annual withdrawal from your RRIF.  And, as in most financial planning strategies, the answer lies in the term – it depends.

It depends on your unique circumstances but one simple over-riding rule tends to apply in this situation.

The longer the funds stay in the tax-sheltered plan, the more growth you will receive.

My suggestion is to match your withdrawal frequency to your needs.  If you need the RRIF payment to be part of your monthly cash flow then set it up for a monthly withdrawal.

If other forms of income are already taking care of your monthly cash flow requirements then set it up as an annual withdrawal and consider (if you really don’t need the funds for cash flow purposes) re-investing the funds into your non-registered investment portfolio (or better yet, into a CRA approved Wealth Protection Plan to gain further tax sheltering on the funds).

beneficiary5. RRIF Beneficiaries and Taxes.

One of the biggest mistakes people make when they set up their own RRIFs either through a discount brokerage account or through the tellor at their bank is they forget to realize that the beneficiary election that they had on their RRSP will not carry over to the new RRIF.  There have been some very heated court cases that illustrate the importance of paying attention to the details – and this detail is important.  Make sure you name a beneficiary on your RRIF.

Here is a listing of the types of beneficiaries you can list on your RRIF and their accompanying tax treatment:

    • Spouse: Tax free rollover.
    • Child: Balance of the RRIF is included in the annuitants final years tax return and then tax is paid on this as if it were income for the year.
    • Relative: Balance of the RRIF is included in the annuitants final years tax return and then tax is paid on this as if it were income for the year.
    • Charity: Balance of the RRIF is included in the annuitants final years tax return and then offset by a charitable receipt little to no tax is paid on the balance of the account.

Hopefully this post has taken the mystery out of Registered Retirement Income Funds.

Three Key’s To Successful Curb Appeal For Your Business

luxuryhomeDoes Your Business Have Curb Appeal?

Let’s say you’re in the market for buying a house and you go to view one that looks appealing in the ad. How does it look on the inside? The outside? What about the location? What is your general impression?

Like your house, your business projects an image to potential buyers. When they come to see your business for the first time, your “curb appeal” can attract a buyer to your business—or cause them to walk away from it.

Do you need to improve your curb appeal?

Here’s a three-step plan:

1. Fix Your Leaky Faucets

leaky faucetPerhaps, like many other business owners, you started your business from scratch with one or two employees and now you have 20 people working for you. But do you have the appropriate HR infrastructure in place for that size of a company?  Perhaps you even take pride in your informal management style, but it can prove to be a liability when it comes time to sell.

Make sure your human resources policies are at least as stringent as those of the company you hope will buy your business. Some basics to have in place:

  • A written policy making it clear you forbid any form of harassment or discrimination;
  • A written letter of employment for each staff member;
  • A written description of your bonus system;
  • Written policies for employee expenses, travel and benefits.

2. Assemble Your Binder

company binderWhen you go to buy a house, it will give you confidence if the owner has the instruction manuals for the appliances, information on where they were purchased, and who to call if one of them breaks down.

Similarly, when a potential buyer looks at your company, he wants to see that you have your business information in order.  Documenting your office procedures, core processes, and other intellectual capital can help you attract more bidders and a higher price for your company, while also lowering the chance of the deal falling apart during diligence.

If you want to attract a buyer one day, your business needs a binder with instructions for basic functions, such as:

    • Opening up in the morning and closing down at night;
    • Forms and step-by-step instructions for routine tasks;
    • Templates for key documents;
    • Emergency numbers for service providers;
    • Billing procedures for customers.
    • How your company is positioned in the market and your marketing tools.

3. Document Your Intangibles

check list bookIntangibles for house buying might include:

  • Is the house near a good school or daycare?
  • What kind of neighbourhood is it?
  • What kind of commute are you looking at to get to work?

Your business also has intangible, often intellectual, assets that a potential buyer needs to be made aware of, such as:

  • Proprietary research you’ve conducted;
  • A formula for acquiring new customers;
  • Criteria you use to evaluate a potential new location;
  • Your unique approach to satisfying a customer.

As with selling a house, your company’s curb appeal can go a long way toward closing a deal.

Six Reasons You May Want To Sell Your Business Now…

HandOverKeysIs Now the Time To Sell Your Business?

Have you been thinking about selling your business but just can’t decide if now is the best time?  Do you find yourself repeatedly analyzing the economic situation and wishing you had a crystal ball? There are positive signs and there are negative signs….

If you’re still up in the air and can’t quite decide whether or not to hit the eject button, here are six reasons you might want to consider getting out now.

1. You’re less interested in fighting the good fight

A lot of business owners took the Great Recession in the teeth. If you’ve got your business stabilized and the prospect of possibly having to fight through another recession leaves you panic-stricken, it could be time for you to get out.

2. The worst is behind you

Let’s say you were mentally ready to consider selling a few years ago and then 2008 hit, and in 2009 you made cuts and adjustments, and now you’re seeing some profit and revenue growth.  With your numbers going in the right direction, now might be just the right time to make your move.

taxes3. The tax man is coming

Governments around the world are looking for money to fund the cost of an aging population. At some point this will mean increased taxes.

4. Nobody is lucky forever

If you’re lucky enough to be in a business that actually benefits from a bad economy, congratulations… you’ve probably just had the four best years of your business life. But no cycle lasts forever and right now might be a great time to take some chips off the table.

5. The coming glut

As a business owner, demographics are not on your side.  As the baby boomers start to retire in droves, we’re going to have a glut of small businesses coming on the market. That’s great if you’re buying; but if you’re a seller, you may want to avoid the flood and head for higher ground now.

6. The closing window

Since 2008, it’s been tougher for private equity companies to raise money; so many firms had their last successful round of fundraising a number of years ago. Many of these funds have a five-year window in which to invest or they have to give the money back to the people who gave it to them. Some boutique private equity firms will make investments in companies that have at least one million dollars in pre-tax profits (larger private equity firms will not go below $3 million in EBITDA); so if you’re in the seven-figure club, you could get a bidding war going for your business among private equity buyers keen to invest their money before they have to give it back.

The bottom line is that now could be a tremendous opportunity for you to take advantage of. But, doing so could be very challenging in terms of time and effort on your part.

Why not find out now if your business is sellable?

This free online tool is the only no-risk step you can take to determine if your business is ready to get full value.  Fast-track your analysis by taking advantage of this free, no-obligation free online tool.

This Sellability Score you instantly receive is a critical component to any business owner’s complete financial plan and is something that, until now, we have only made available to existing clients.

However, we recognized that there is value in knowing in advance of working with a financial planner whether or not your largest asset is ready to be exchanged for your retirement nest egg.  Our view is that you are better to learn more about your businesses sellability today and find out how your business scores on the eight key attributes so that you can ensure you obtain full value.

If your business part of your retirement plan, finding out your sellability score will be the best 10 min. you could ever spend working “on” your business.

Take the Quiz here: The Business Sellability Audit

Sellability Score

For more free information on Creating A Business Owner’s Dream Financial Plan, you can listen to a free, eight part series we did exclusively for business owners.  The show is also available to subscribe to for free via iTunes.