Are You and Your Business Prepared?

“Did Matthew have a plan to deal with his business?”

Sheila’s life partner, Matthew, died a week ago. He ran a successful bookkeeping business.

Sheila was in my law office to get advice. Here is what she wished she had known before Matthew had died suddenly.

Matthew did not have a will. He and his business were not prepared to protect his loved ones.

Matthew was a sole proprietorship. Without a will, he had no estate trustee or executor to operate the business. The business lost all value overnight and died with Matthew.

Matthew rented a small office for the business. His landlord wanted to know who would pay the back rent. Otherwise, the landlord wanted to trash everything inside the office. The landlord was only interested in getting a new tenant to pay rent.

Sheila asked me what rights she had. She wanted to remove papers from Matthews’s office. His clients were calling her at home looking for their financial papers.

Matthew had no succession plan for his business. He never considered what would happen once he was not around. He did not even have a power of attorney. Sheila had no signing authority at the bank for the business account. Matthew thought this was best to limit Sheila’s liability.

Business Assets v. Liabilities

What kind of estate plan do business owners need?

That depends on how they operate their business. Businesses can be sole proprietorships, partnerships or corporations.

Look at the problems Matthew left behind.

Matthew was the only owner. He was personally responsible for the business debts. Matthew received all the income which he reported on his personal tax return. Matthew’s Bookkeeping Services was the name of his business.

Matthews’s estate will have to satisfy all his business creditors, including his landlord and clients.

Matthew did not have a will. No one was authorized to collect his business receivables. Matthew’s executor would have been able to act immediately if he had a will.

Was Sheila exposed to any business liabilities?

Sheila needed to get advice. She needed to know if Matthews’s estate was not insolvent. In other words, that his assets did not exceed his liabilities. If there was any concern, Sheila should not take any steps to deal with the estate. Matthew’s creditors could always demand an accounting from her.

Matthew was not up-to-date with his own government filings. He had not filed an HST return for a while. Matthews’s credit card and business expenses were not protected with life insurance. Sheila had difficulty determining what Matthew owed for income tax and other bills.

Without a will, Sheila had no access to the Matthew’s Bookkeeping Services business account. She had a business bank statement with a $40,000 balance. Matthew’s estate could be wiped out by creditor’s claims and liabilities. She could not take any steps to sell the business to Matthews’s employee.

The bottom line was that Matthews’s business became less than worthless. Matthew’s business debts reduced the assets he wanted to leave for Sheila.

Estate Plans for Business Owners

Matthew could have made a business plan to:

1. Incorporate his business to protect his personal estate from business creditors. He could have left more for Sheila.

2. Make a will to authorize Sheila to operate the business until it could be sold.

3. Create a buy/sell agreement. Matthew’s employee could buy the business if something happened to Matthew.

4. Buy life insurance to pay his bills or fund a buy/sell.

The moral of Matthew’s story: The biggest risk is death. Protect loved ones with a business estate plan. Don’t short change your family.

About Ed

Edward Olkovich (BA, LLB, TEP, and C.S.) is an Ontario lawyer, nationally recognized author and estate expert. He is a Toronto based Certified Specialist in Estates and Trusts. Ed’s law firm website is © 2014

Business Owner Succession Planning—Don’t Put It Off Any Longer.

jerry-jones-1024x856Canadians are aging and Canadian entrepreneurs are aging even faster. According to the Canadian Venture Capital and Private Equity Association, over the next 12 years, more than half of the country’s medium sized business owners are expected to retire. In Southern Ontario, it is expected that more than 64% will need to retire in less than 8 years.

An estimated trillion and a half dollars in business assets are expected to change hands over the next decade, representing the largest turnover of economic control in generations.

Most owner-operators feel that it is too early to plan for business succession.  Many family business owners are underestimating the challenging issues they will have to address, the time it will take to address them, and the emotional decisions they might have to make. The majority of business owners have not even started to discuss their exit plans with their family members or business partners.

Those statistics are unfortunate, and the apparent lack of preparation could backfire on some business owners. “Succession planning should be a deliberate process and not a one-time event. Business owners should realize that the best time to plan is when you can afford the time to properly evaluate alternatives and seek input from professional advisors.  Owners ideally never want to be forced to accelerate their succession planning.”

Business succession planning is an investment in the future of their company for the owners, employees and customers. Planning is the key to future success for everyone whose efforts have helped the business to grow. The existence of a succession plan emphasizes commitment to a company’s long-term growth, and creates confidence among shareholders, lenders, employees and suppliers.

So have you been putting off succession planning for your business?  There is no time like the present to explore your options. This process will involve asking some tough questions and exploring scenarios that may not please all family members, shareholders, managers or employees.

Do you want to sell the entire company in due course? Do you want to sell some now and complete the rest of your liquidity later? Is it important to you that ownership remain with family members or managers? Do you want them to have control or just minority equity participation alongside a new owner?

Owners have various alternative options. The first step should be to have a professional business valuation firm prepare an assessment of the value of your company. It is important for the business owner to be realistic with respect to valuation expectations, or a lot of time will be wasted. Accountants and lawyers should be involved in estate planning and tax matters.

Answering the questions posed above can be time consuming and should not be rushed. Most owners and in fact most businesses are not ready for the sale process to begin immediately. The valuation conclusion and business review process often indicates that some issues of management depth, capital structure and profitability should be addressed before proceeding not only to support valuation expectations, but also to have a more saleable business.

That is why many owners find a gradual exit less alarming than an immediate one, “If you can prudently diversify the family net worth by taking some chips off the table now, you can better plan for the sale of the rest of the company, and probably at an improved valuation. This also generally leads to a smoother transition, and gives the owner a better chance to evaluate next generation managers, to transfer business relationships and responsibilities, and to identify and manage risks that a strategic buyer will consider down the road.”

Most family business owners dont build their businesses with selling them as a top priority, but more should. This involves drafting a written strategic plan for the future priorities and direction of their business, and putting in place next generation management so the business can grow and prosper without them.

Following these steps, and starting succession planning early, will ensure an effective process, with due consideration given to the range of issues and emotions that family business owners usually face.

Mark Borkowski is president of Mercantile Mergers & Acquisitions Corporation. Mercantile is a mid market M&A brokerage firm. He can be contacted at or