Joe welcomes Matt Holmes (CPA, Director at Holmes CPAs & Tax Advisors). They take a deep dive into succession planning. Joe and Matt share a poignant case where the absence of a contingency plan resulted in a less-than-optimal sale for the family due to the owner's passing.

Together they provide invaluable insights into the strategic considerations and pitfalls that entrepreneurs should be aware of, making it an essential listen for anyone navigating the complexities of selling or transitioning their business.

What You’ll Learn in Today’s Episode

Pre-Sale Planning is Crucial: Failing to plan well in advance of a sale can lead to challenges when unexpected opportunities arise, impacting the outcome of the sale of the business.

 Impact of Business Expenses on Sale Price: Joe and Matt offer a real-world example to illustrate the significant impact of maximizing business expenses for tax purposes. These practices, while offering short-term tax savings, can substantially reduce the perceived value of the business during a sale, potentially costing hundreds of thousands of dollars.

 Succession Planning for Unforeseen Events: If you are a business owner, you need a succession plan in place. When it comes to unforeseen circumstances, such as health issues, it can force business owners into a position to sell.

 Start with the End in Mind: Successful business transitions begin with a forward-looking mindset. The podcast recommends that business owners start planning for their exit at least five years in advance. This involves determining what they need from the sale, establishing a clear retirement goal, and aligning the sale price and timing with their financial objectives.

 Structural Considerations and Tax Implications: Structure the business from the beginning to optimize tax outcomes during a sale. Considerations such as setting up family trusts, managing passive investments, and structuring real estate holdings impact the overall tax efficiency and success of a business transition.

 Ideas Worth Sharing

·       "A lot of the common mistakes that we see business owners make is just not planning well far enough in advance of a sale."  

·       “We try to coach our clients to start cleaning up their financials leading up to a sale. Let's try to get a true picture of what the earnings are and exclude all of those items that might be personal."

·       “In terms of creating value, I think it's always a competitive battle between showing profits in a business versus minimizing tax.  

·       “It's overwhelming a little bit because nobody knows where to start, necessarily. And I've even seen this in my practice. Where do you start? What is the price? Who's going to be the buyer, and how do you put that plan in place?" 

·       "I think one of the key successes I've seen in a lot of these transitions has been starting with the end in mind, determining what you need from it and establishing a plan to get the right price."

Resources in Today’s Episode

Joe Curry

Retirement Planning Simplified

The RPS Retirement Navigator

Matt Holmes – mholmes@hrcpa.ca

Ep # 34 – YRPS – Retirement for Business Owners with Bob Gauvreau

Ep # 50 – YRPS – Managing Taxes: Strategies for Business Owners

Ep # 64 – YRPS – Retiring Business Owners: Success Stories and Expert Tips with Nick Mombourquette

Ep # 68 – Business Exit Mastery: Avoid Pitfalls and Maximize Value with David C Barnett – Pt 1

Structuring your business for tax efficiency and flexibility

We want business owners and entrepreneurs to strategize for success.

Matt Holmes (CPA, Holmes Riseley LLP) and Joe Curry (CFP, CEPA) reveal the mistakes business owners make when trying to maximize value and achieve a seamless transition into retirement.

This podcast provides strategic planning for succession planning. Joe and Matt emphasize the importance of planning well in advance of a sale, recounting experiences where unexpected offers or health issues lead to an early sale. They examine circumstances that affect the impact of the sale process. They also underline the repercussions of lacking a contingency plan and the vital role of financial cleanup before a sale. Joe and Matt promote a proactive approach, advocating for starting with the end in mind and determining the necessary plan for a successful transition. At the end of this episode, you will have a deeper understanding of the complexities involved in business transitions.

In this episode, you will be able to:

·        Avoid common mistakes to maximize business value.

·        Plan for unexpected circumstances to secure your business future.

·        Discover the key factors for successful business transitions.

·        Learn the benefits of setting up a trust as a business owner.

·        Understand the implications of new tax rules on your business.

The resources mentioned in this episode are:

·        https://holmesriseleycpa.com - For tax advice and assistance with business transitions, visit the website at www.hrcpa.ca or contact Matt Holmes via email at mholmes@hrcpa.ca.

·        Location - If you're in Peterborough, Ontario you can visit Holmes Riseley at 823 Park Street South, just south of Lansdown Street.

·        Contact Matt Holmes - For tax advice and assistance with business transitions, you can reach out to Matt Holmes via email at mholmes@hrcpa.ca.

Timestamped summary of this episode:
00:00:01 - Introduction and Overcoming Challenges
Matt and Joe discuss overcoming the challenges of conducting the podcast while recovering from a cold. They discuss the common mistakes business owners make in maximizing business value and the importance of planning for unexpected circumstances like health issues.

00:07:39 - Successful Business Transitions
Matt talks about the importance of starting to plan for business transitions at least five years in advance. He emphasizes the need to determine retirement income needs and the optimal time for transition, as well as ensuring that the business can operate without the owner's direct involvement.

00:09:07 - Importance of Exit Planning
Joe and Matt discuss the importance of exit planning as a good business strategy, regardless of the timeline for exiting the business. They highlight the need to increase earnings and make the business less reliant on the owner, which can drive up earnings multiples in a sale.

00:11:23 - Structuring and Tax Advisory
Matt emphasizes the significance of getting the business structure right from the beginning to minimize tax implications in a future sale. He shares a success story of a client who utilized a family trust to multiply the use of capital gain exemptions, resulting in substantial tax savings on the sale.

00:13:46 - Timing and Considerations for Trusts
Matt discusses the considerations for setting up trusts, including the 21-year rule and the potential complications and costs associated with maintaining a trust. He highlights the importance of assessing the timeline for selling the business and the impact on trust management.

00:14:47 - Setting up a Trust for Business Owners
Matt discusses the challenges of setting up a trust for business owners, and the potential pitfalls of making decisions about trust property when children are still young.

00:16:08 - Capital Gains Exemption and Passive Investments
Matt explains the impact of passive investments on the lifetime capital gains exemption, and the restrictions on non-active business assets leading up to a sale.

00:18:10 - Challenges with Real Estate Holdings
The complexities of transferring real estate holdings within a business are discussed, along with the recommendation to keep real estate used in the business separate from passive real estate.

00:20:47 - Selling to Third Party vs. Family Member
Joe discusses the differences in negotiation when selling to a third party versus a family member, and the challenges of balancing tax implications with family transition objectives.

00:25:35 - New Rules for 2024
Joe explains the significant changes in alternative minimum tax rules and the introduction of new general anti-avoidance rules, highlighting the impact on business owners and the need for careful planning in light of these changes.

00:31:47 - Concerns about Broad Application of New Tax Rule
The discussion revolves around the concerns regarding the broad application of a new tax rule and its potential unintended consequences, especially in transactions involving asset transfers and capital gains.

00:32:31 - Uncertainty Around Rule Application
The conversation highlights the uncertainty and unease among tax advisors about how the new rules will be applied in practice, as the discretion of the authorities remains unknown until enforced.

00:33:07 - How to Get in Touch with Matt Holmes
Listeners are given information about how to contact Matt Holmes for tax advice and assistance with business transitions and succession planning.

00:33:49 - Closing Remarks and Contact Information
Closing the conversation with contact details for Matt Holmes and a mention of the passion for succession planning and tax assistance. The hosts express gratitude for the discussion.