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 Proper Planning To Transition Out Of Your Business and How to Avoid Common Pitfalls Many Business Owners Put Themselves In
Suppose you were thinking about transitioning out of your business in the next few months, or even in a few years from now. Would you know where or how to start the process? Most business owners do not know the answer to that question. As a result, between 50% to 70% of all privately held businesses that are in play, fail to sell.
With a sound plan, your chances of a successful transition are greatly increased, regardless of whether you wish to transfer the business to family, employees, management, or to a third party. Most business transitions fail due to any number of reasons including: Unrealistic price and terms, business-owner’s lack of preparation, inappropriate exit strategy, due diligence surprises, the business’s lack of preparation, and poor timing. With proper planning, these issues can be addressed and the chances of a successful transition are greatly increased.
 Personal financial planning is recommended to determine what your post-transition financial needs will be. It would make little sense to proceed with a transition strategy only to find out after the fact that the net proceeds after tax and fees are not enough to support the lifestyle you envision. You should take into consideration your personal needs, goals, resources, and values.
As part of a succession strategy you will need to add a life insurance agent who specializes in sophisticated succession planning strategies to implement your plan.
You might say that you have suitors calling everyday who express interest in buying your business, so why go through this process and spend the money? Anyone who is pursuing you has his own agenda. What is good for the other party might not be in your best interest.
Whether you are selling to an outside third party or are transferring the business to family members or to employees, the examples we will show you will assist you to improve the value and integrate the affairs of the business with your own personal needs.
The downside is that you or your family might not be as prepared psychologically or financially for the post-transition phase. If you take the time to attend this seminar and learn from the strategies presented you will be in control and you will be pleased with the end result.
A SUCCESSFUL SUCCESSION PLAN!
The Use of the Capital Dividend Account
 A capital dividend account is a notational entry that private companies can track certain types of income as long as the company is a resident of Canada and is distributed by the corporation as a tax free dividend to its Canadian Resident shareholders. By setting up your life insurance in the private corporation, the corporation would be named the beneficiary of the life insurance policy so in the event of the death of the shareholder the corporation receives the notational capital dividend entry for the death benefit less the adjusted cost basis of the insurance policy. The benefits to the company that buy corporate life insurance is to arrange for funds upon the death of the insured so they do not have to borrow or withdraw money from the business. The corporation doesn’t have to pay a capital dividend immediately after they receive the death proceeds and the capital dividend balance which was a result of receiving the death benefit will remain until the capital dividends are elected. This is advantageous to the business as it allows them to elect to pay the capital dividend when it is best for the shareholders. A corporate policy, as mentioned, will provide the company the money when it is needed to fund a buy sell, cover off debt from a business’s line of credit or loan and covers off replacement and training costs of losing a key person inside the organization.
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