M&A advisor Trisha Mossey shares her insights as a professional who also volunteers with two very different organizations
For the last two years I’ve worked fulltime as an advisor with MRSB Mergers & Acquisitions. This means I spend the bulk of my time making sure our clients are successful in buying and selling businesses. The business owners and entrepreneurs I work with are engaging, savvy and often entertaining people who want to enjoy professional and financial success.
Two years ago I joined the executive of Catholic Family Services Bureau (CFSB), a wonderful not-for-profit organization that helps families and individuals in Prince Edward Island overcome obstacles through professional counseling. As Treasurer of their board, I oversee CFSB’s finances. Just six months ago, I also joined the Biz Under 40 committee, a group of young professionals who organize fun networking events for other young professionals in PEI under the Greater Charlottetown Area Chamber of Commerce umbrella.
Obviously, my two volunteer roles are very different; thus they offer very diverse experiences. Here are a few reasons why joining a local board or committee (or two!) might be right for you:
- It increases your knowledge and experience
Overseeing the finances of a not-for-profit is totally different than working on specific client files for a private company. Each cog in the NPO machine has to live up to his or her role if the organization is going to thrive, especially in today’s climate when resources are often hard to come by.
In volunteer roles you often have the opportunity to work with more experienced people who know the organization inside and out. You have to set aside the private business mindset and open the doors to a new world with different priorities and goals. It’s also a chance to get away from your desk and take part in a host of events and meetings that can put you in a new mindset that is separate from your day-to-day.
- It expands your networks
I’ve met a lot of great people through both CFSB and Biz Under 40. Far from attracting people from the same walk of life, meetings are filled with lawyers, business owners, accountants, teachers and social workers to name a few. Cooperate with, learn from and make friends with these people; you never know when you’ll be able to help each other out in a professional capacity.
- It challenges you be a better team player
For Biz Under 40 we have to come up with fun, creative networkers that will get people out and increase overall attendance numbers. For CFSB the focus is to keep the organization ticking and effectively helping those in need. Two very different causes and both involving several stakeholders. Each role challenges me to look at what works for other committee members and for the organization at large. We each must be respectful of others’ opinions and viewpoints because we have to make important decisions as a group constantly, and often quickly.
One final tip
My main piece of advice would be to find an organizations you’re passionate about, as you will be helping to guide future decisions on its behalf. A board or committee position requires time and energy, so a personal connection to the organization can keep you motivated when things get busy or challenging. It also gives you a great chance to learn more about an organization you’re interested in. Don’t forget to keep your volunteer positions in mind when applying for your next professional role, and have fun!
Colin Younker, CPA, CA, FCA points out some important differences between these two savings vehicles
The Registered Retirement Savings Plan (RRSP) and the Tax Free Savings Account (TFSA) are two government-run tools for saving for your retirement. The question often is, which is a better investment? There are quite a few differences between the two that may influence which one you decide to invest in.
The best option for most Canadians is to invest in both the RRSP and TFSA. However, the amount of funds available in most cases will require a choice between one or the other, or a partial contribution to each.
When deciding whether to invest in the RRSP or TFSA, certain factors should be considered:
- If both your current and expected retirement tax rates are in the top tax bracket, financially both investments are the same
- If your retirement income is in the Old Age Security clawback range, the TFSA is a better option as the RRSP income increases the net income and the amount of clawback
- For taxpayers who have two or more dependent children, the RRSP is the best option for those in the $25,000 to $95,000 range as they will receive greater child tax benefits; this is because the RRSP contribution decreases net income
- The TFSA is a more flexible investment tool. If you withdraw funds from your TFSA there is no tax impact. If you withdraw from your RRSP the withdrawals are taxable
- If you withdraw from your TFSA your contribution limit is reinstated the following year, allowing the funds to be reinvested; this is not the case with an RRSP
- After you reach 71 there are mandatory minimum withdrawal requirements for RRSPs and you cannot make further contributions; these rules do not apply to the TFSA
- If you feel you require a savings plan from which you want to withdraw funds at different times, the TFSA is the better option, although one should bear in mind that a TFSA is easier to withdraw from and investors may not be as diligent to reinvest funds
There are a couple of other factors to take into account when deciding between the RRSP and the TFSA. For example, if your employer matches your contributions to an RRSP then you should be contributing at least the maximum amount the employer will match. Also, the tax savings you realize from RRSP contributions should be reinvested for maximum savings.
The advice above may not apply or provide maximum benefits for all taxpayers, depending on their income and investments. Each taxpayer should talk to a professional advisor before making changes to your retirement savings plan.
When you are in the thick of business ownership it can be difficult to put yourself in the mindset of someone ready to sell. After all, you have a general idea of when you’ll be ready and, right now, being at the helm feels pretty great.
Not to be contradictory, but it’s actually never too early to plan certain aspects of selling your business. Even if you are years away from moving on, there are steps you can take now that will make the eventual transition faster, easier and definitely more profitable for you.
The emotional factor
Think you care about the well-being of your business now? Wait until you’re facing the prospect of seeing it in someone else’s hands. As noted by a Harvard Business Review article in November, the difference between M&A success and failure often has more to do with relationships, culture and emotion than with strategy or finances. Much of the emotional impact of a sale rests with the seller – you – who may not even realize what the business truly meant until the transaction is underway, or completed. Even if you’ve dreamed for years of relinquishing the time commitment of being an owner and moving on to that yacht, cabin or snowbird lifestyle, your business has likely become a significant part of who you are. This sense of loss can impact the value you attribute to the company, if not on paper, then in your own mind.
One way you can prepare for the emotional impact of selling is to have a clear exit strategy in place long before the deal gets underway. Even if you plan to leave your business to family, mapping out a thorough succession plan can provide security and make the eventual transition more a reality than a possibility. It’s also important to think about what you’ll do after you sell. Will you invest the money realised? Use it as your pension? Travel ‘til your heart’s content? Whatever you decide to do with your newfound wealth, the sooner you have a plan, the better you’ll feel about moving on.
The sale of your business affects others besides you, and emotion can come into play when talking about the impact on employees. According to a 2013 report by consultancy theStorytellers, ‘the successful integration of people and culture is seen as one of the most important factors in making an M&A transaction a success’, ranking second in importance next to ‘Integrating systems and processes’. If your prospective buyer plans on keeping your staff in place post-sale, you’ll want to ensure goodwill is maintained and that dedicated staff feel there is a support system in place so they can transition smoothly.
The Capital Gains Tax is paid by every Canadian business owner who sells his or her business for more than was originally paid. If you bought your business 15 years ago for $180,000 and are now selling for $250,000, technically you are obligated to declare a $70,000 capital gain in the current tax year. Luckily in Canada we are privy to several exemptions that may reduce the amount of capital gains you must claim.
One exemption that applies specifically to business owners is the Lifetime Capital Gains Exemption, which as of 2013 stood at $750,000 and increased to $800,000 in 2014. As a Canadian who owns an active business that is based primarily in this country, you are entitled to this reduction in capital gains upon selling shares of your business, or farming/fishing property.
There are a couple of provisions to keep in mind that can further enhance the capital gains exemption. While your personal exemption is limited to the total gains on qualifying property over the course of your life, you aren’t required to claim the exemption all at once. Also, to be able to claim the exemption, you or a relative must have owned the shares for two years prior to sale. And during those two years, more than 50 per cent of the company’s assets must have been used in an active Canadian business or invested in other, small corporations. If you own investments or other assets that aren’t used in the active business, you should consider setting up regular withdrawals to remove the excess cash and assets, as an unexpected event like the death of a shareholder could trigger the sale of the shares for tax purposes.
Having your spouse or adult children own shares in the company can increase the available exemption. Consider a family trust as a way of doing this, so that family members can take advantage of their exemptions when the time comes.
Imagine a seasoned business owner, Mr. Booker, is selling you his 25 year-old printing and design business, along with his warehouse full of paper stock, various industrial printers and a decade’s worth of invoicing and tax filings, all stored in an internal computer system. While you have experience as a graphic designer and plan to hire an operations manager, you have little hands-on knowledge of running a company of this size or of the high-tech machinery involved. The day of the sale, Mr. Booker congratulates you, hands you the keys and drives away, never to be heard from again. It’s pretty obvious what’s missing from this (slightly far-fetched) equation; Mr. Booker has provided you with no training, coaching or know-how in actually running the business. In other words, you didn’t purchase any intellectual capital along with the tangible assets.
If you are selling a complex business that requires knowledge above and beyond the normal scope of ownership, you should consider staying on to help with training and to assist in relationship building between the new owner and existing clientele. Apart from helping to ensure the business you’ve built continues to thrive, sharing your intellectual capital can increase the value of the business and therefore the sale. The possibility of spending six months to a year with the business after it is sold is something you should take into account well before you sell, as it will affect your plans to retire or move on to another venture.
Selling your business can be joyful, nerve-wracking, liberating or a time of contemplation about your future. The more you can plan for an eventual sale now, the more mentally and emotionally prepared you’ll feel down the road. Feel free to contact me with questions at firstname.lastname@example.org or call 1-902-368-2643.