Eight Things to Consider as You Grow Your Business
Eric Brown - Sep 09, 2020
This comes with its own set of circumstances and challenges. It will be a balancing act between keeping up the growth and managing the risks.
Here’s the situation: You’ve grown your business to a point that you aren’t a start-up but don’t want to exit the business any time soon. What are you? A growth business! This comes with its own set of circumstances and challenges. It will be a balancing act between keeping up the growth and managing the risks.
Here are the eight points you should consider as you grow your business:
1. Update your buy/sell agreement and will. Unwanted business partners, family strife and in-fighting, and massive tax and legal bills. That’s what can happen if you don’t update your buy/sell agreement and will. It’s not worth the grief for you and your family to let these documents go without a review at least every three years or when a major change happens in your life.
2. Evaluate your current business professionals. Are you still using the same professionals (accountant, lawyer, financial advisor, or insurance advisor) that you were using many years ago when your business was different? If so, it’s time to evaluate them to see if they still have the skill and knowledge to properly advise you on your more complex business and family situation. Take the time to interview several to find one that you’re comfortable with and has the expertise you need.
3. Does your corporate structure make sense? As your business grows in size and complexity, you might require a different corporate structure to keep up with your changing needs. Do you need a holding company? Would a trust make sense? Should your family be shareholders and how would that work? There are tax, liability, and risk management reasons to evaluate your structure. Consult with your current business professional or find one who has expertise in those areas.
4. Don’t lose money. Watch your risk. As a business owner, you take risks in your business to varying degrees. Make sure that you have an appropriate level of risk in your other assets, so that if something happens to each class of assets at the same time, you aren’t left with any options but bankruptcy. This doesn’t mean don’t take any other risks, but be aware of the risks you take, so you can reduce or eliminate the risk of catastrophic losses.
5. Create a long-term financial plan. If you don’t know where you’re going, how can you expect to arrive there? A planning professional will be able to look at your situation from a 30,000-foot view to make sure everything is working towards your goals. The right professional will not only create a plan for you but create a step by step action plan and help you follow through on that plan. Common topics that are addressed: retirement income planning, education goals for your children, survivor needs analysis, and estate planning.
6. Protect your family. Your family is important, so make sure they’re protected in case of death, illness, and marital or business breakdown. Run through each scenario so that you can understand the risks to your family and make plans to deal with these situations if they occur. Insurance is often a relevant solution, but it’s not the only one, and it doesn’t fit in every situation.
7. How are you compensated? Should you be taking your income in the form of dividends, salary, or other sources? There are pros and cons to each, but sometimes this doesn’t get addressed as it can be seen as inconsequential, but in reality, it could have a large impact on your Canada Pension Plan, RRSP savings, and taxes due. Consult with your accounting professional to understand what is the best scenario for you.
8. Keep the end in sight. I know you don’t want to think about exiting your business because you have many years left. What happens if you get an unsolicited offer for your business that sounds fair? What happens if your health changes, and you’re no longer able to run your business? Will you be able to sell your business for a reasonable price? The purpose of an exit plan is to focus your business on profitability, business value, and efficiency, but shouldn’t you be doing that anyway?