Episode 201: Smart Exit Planning: Protecting Your Wealth and Legacy From Karl Sigerist

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Are you letting too much of your business’s hard-earned cash sit idle when it could be working for you in multiple ways?

As a business owner, you know the importance of having liquidity—an emergency or opportunity fund you can access instantly. But parking that money in a savings account or GIC often feels wasteful, especially when inflation eats away at its value. The challenge is balancing peace of mind with real growth. That’s where the idea of a “wealth reservoir” comes in: a structured way to protect cash, keep it liquid, and still put it to work building long-term wealth.

In this episode, you’ll discover:

• How a whole life insurance policy can serve as a corporate wealth reservoir, giving you both liquidity and steady growth.
• Practical strategies for deciding how much to contribute and how to scale as your retained earnings grow.
• The emotional and financial considerations for starting small—and why most successful business owners eventually build multiple reservoirs.

Press play now to learn how to transform idle corporate cash into a powerful engine for security, opportunity, and long-term wealth.

Resources:

• Karl Sigerist and the Shaughessy Group’s Resources
• IS YOUR BUSINESS AN ACQUISITION TARGET, TAKE THE QUIZ TO FIND OUT [Shaughessy Group]
• Ready to take a deep dive and learn how to generate personal tax free cash flow from your corporation? Enroll in our FREE masterclass here. 
• Book a Discovery Call with Kyle to review your corporate (or personal) wealth strategy to help you overcome your current struggle and take the next step in your Canadian Wealth Building Journey!
• Discover which phase of wealth creation you are in. Take our quick assessment and you’ll receive a custom wealth-building pathway that matches your phase and learn our CRA compliant tax optimized strategies. Take that assessment here.
• Dig into our Ultimate Investment Book List
• Follow/Connect with us on social media for daily posts and conversations about business, finance, and investment on LinkedIn, Instagram, Facebook [Kyle’s Profile, Our Business Page], TikTok and TwitterX. 
  

Calling All Canadian Incorporated Business Owners & Investors:

Consider reaching out to Kyle if you’ve been…

• …taking a salary with a goal of stuffing RRSPs;
• …investing inside your corporation without a passive income tax minimization strategy;
• …letting a large sum of liquid assets sit in low interest earning savings accounts;
• …investing corporate dollars into GICs, dividend stocks/funds, or other investments attracting cordporate passive income taxes at greater than 50%; or,
• …wondering whether your current corporate wealth management strategy is optimal for your specific situation.

Building long-term wealth in Canada requires more than just growing a business—it means preparing for business succession with accurate financial records, compliance-ready systems, and a strong advisory team to maximize your business valuation and exit strategy. Many Canadian entrepreneurs face emotional attachment when planning a business sale, but with tax-efficient investing, RRSP optimization, and smart capital gains strategies, you can transform a saleable business into a cornerstone of your Canadian wealth plan. By balancing personal vs. corporate tax planning, leveraging retirement planning tools, and choosing wisely between salary vs. dividends in Canada, business owners can unlock financial freedom Canada envisions—whether through real estate investing Canada, financial buckets for diversification, or corporate structure optimization. From legacy planning Canada to modest lifestyle wealth or early retirement strategy, the right combination of financial systems for entrepreneurs, estate planning Canada, and investment bucket strategy ensures financial independence Canada-wide, while keeping your financial vision setting aligned with both current needs and future goals.

Transcript:

We are excited to welcome Carl here, who’s going to be chatting with us about business succession and really how to set up your business for a profitable sale. know many of the folks, including a couple who have their cameras on right now, I’ve met with in the past and many of you in the chat, I recognize some names there. I see Peter out there. see also, I thought I saw Gary. Yep. Gary’s here with us today. Lots of folks.

recognizing your name. So definitely say hi in the chat, keep questions coming. And today, we’re going to be welcoming Carl, who’s going to be giving us a little bit of a rundown here on how we can properly set up our businesses for a profitable sale. Carl, how are you doing today? Tell everybody where you come into us from. And we’ll take a quick minute to, you know, allow you to share a little bit about you and what landed you in in this industry.

Thank you, Kyle and John, for organizing this. We are coming to you from sunny Toronto this afternoon.

Awesome. Well, that’s yeah, we are as well. Glad it’s sunny for you. It’s not so sunny here for us. was going to say. Southwestern Ontario is pretty cloudy the last couple of days. So Carl, it’s coming your way because the weather always goes your way after it hits us. So it’s coming towards you and anyone else in the Toronto or the GTA or the area east of us.

But yeah, let’s get into it here to get started. We’re gonna be unpacking how to set up our businesses for a profitable exit. Carl, how did you land in the business of assisting a corporate business owners with properly planning that successful asset? Give us a little backstory here. Let everybody know a little bit about yourself here so that we can dig in.

The child of entrepreneurs who immigrated to Canada themselves. Grew up at the kitchen table, boardroom table, learning about business at a very formative. Swore off entrepreneurship, having seen the ups and downs of that. In my teenage years, swore it off, joined the corporate world, wanted a nice vanilla job.

And in young age where I could drive a vanilla car, live in a vanilla house and wear a vanilla suit. And so I spent the first part of my career in technology for about a decade, then moved into financial services and worked for other people. And after creating a number of seven, eight, and even now a 10 figure, an 11, 10 figure founder, you know,

So. You got to do this yourself. So after having worked in corporate and turned a number of businesses around for other people and for public companies, me and some colleagues had an opportunity to buy a business or into the business, eventually spin it out. And throughout my whole career in both technology and financial services, it’s been around corporate finance.

And mergers and acquisitions, either being acquired or acquiring, doing a lot of that kind of thing. The business that we ended up, our last business was a business that financed entrepreneurs in their growth and in niche markets that typically were ignored by the banks and provided that financing. Having failed at entrepreneurship or at retirement earlier,

failed an entrepreneurship as well but having failed at retirement a number of times and we exited the last business to a deposit taking institution. My wife knew that I’d be doing something else and so I haven’t taken the summer off in 2017. The thesis was all those entrepreneurs that we financed for decades are probably getting older like we did.

can’t avoid it, probably will have the same issues growing and financing their business comes time to exit their business. So that was the thesis of starting the Shaughnessy Group in Vancouver in November of 2017. To validate that thesis, we only took on work that was referred to us by wealth managers, lawyers, accountants of these business owners and found a niche that was kind of ignored.

depending on the size of business you had. So if you had a really, really small business, less than $5 million in revenue, real estate type brokers will often help you sell that business. If you’re north of 50 million in revenue, Canada’s investment bankers are sitting outside your door right now waiting to sell your business. But if you’re in that space that many of all of our clients are, we call it the space that is

too small for investment banks, but too sophisticated for business brokers, there really wasn’t a, what we felt was an appropriate solution. How can we provide white glove, Bay Street service, lower middle market as &A advisors? And that’s effectively what we did. We relied on referrals in our early years to grow the business. I relocated back to Toronto in 2018, opened up in Toronto at that time.

And We’ve been going at it ever since, working in this lower middle market, everywhere from Halifax to…

I’d love it. I love it. appreciate a little bit of that backstory. for those who are sitting here with us watching and those who are listening or watching this recording after the fact, I want to dig right in here. you know, so I want to start with a juicy one here. I want to start with some blind spots. Okay. As business owners, one of the biggest challenges, even though as we’re working through our business, we’re trying to grow the business, obviously,

creating profits for our own lifestyle and to build our own investments. But at the same time, many of us have a vision of a potential exit down the road. What are some of the biggest blind spots that you run into being in this industry? you know, I guess what are some of the things that people want to be thinking about now in order to help themselves prepare so that they don’t allow these to be blind spots for themselves?

Well, Kyle, you just said it. How do we help people prepare? Prepare, prepare, prepare. Because founding the business and running the business is completely often to your point. The financial information is what I need to run my business. And if your business gets to a certain size and you’re using bank financing, the bank will tell you, and here’s what we need, you need to upgrade your financial services. However,

Not all businesses use bank financing and not all businesses. Financial records are properly prepared well in it. When you’re going to sell your business, you’re going to need at least last three years of financial information. Most buyers will buy your future. So you need to have the internal discipline to be forecasting in your business, which is extremely difficult to do. We recognize that, but you need to have the financial records adequately prepared.

When it’s a business that’s just owned by you, compilation assurance is good enough to fire income tax, that’s fine. When you start to bring bank financing in, you need to upgrade your assurances to at least review engagement, depending on how much capital you’re bringing in and outside investors, may even need to get the audited statements. But many of our clients in that five to $50 million revenue range aren’t adequately prepared financially I’m from a business that they can report to a potential buyer.

Carol, what specifically, like I know that business owners in that range have to be, you know, having accountants and financial statements and all those things that we all do to like make sure that books are balanced. Like what is it specifically that you’re seeing that they’re not prepared with financial statements in mind?

So for example, if you’re using compilation statements to run your business, that means that you may not be GAAP compliant. Yes, your book’s balanced, but you’re not GAAP compliant. Your revenue recognition may not be correct.

So the statements that, it doesn’t really matter whether you’ve got the most, best brand accounting firm doing your statements. had a client use one of the top four firms, but did a compilation statements and got into a situation where those statements were in gap compliance in Canada. they under LOI, and then we got what into what we call in our business, a retrade after the financials were properly adjusted, the business was worth

Then the bid that ultimately that the buyer offered to buy the business. So what do you mean? You know, it’s a bit like selling your house. They do an assessment and then they find out, know, furnaces needs to be replaced, roof needs to replaced, et cetera, et cetera, et cetera. And now your house is being undervalued or devalued for things that you could have prepared, could have prevented. Financial preparation sets the foundation.

For sure, for sure. like, are you seeing any numbers like what that jump looks like? I know that maybe like you’re coming in and going like, look, like this is, you know, this is the state of what you’re, what these statements are in now. We’re gonna make some adjustments. We’re gonna make some corrections or we’re gonna make this look a little bit better for resale.

Yeah, like I was just like, we don’t do this, like everyone’s going to do it, Cause they’re there. They’re obviously we’re going to, we’re going to make those adjustments. But I was just curious of like, is there any data that you’ve got or collected along the way that says like selling it this way versus selling it that way is this type of jump in terms of multiples.

The problem, it can be catastrophic because your business might be cash flowing, but you may not be compliant with GAP. Depending on who your acquirer is, many acquirers will simply just walk away from the deal because to include your business into their larger business, there needs to be a massive restatement of your financial records. So we highly recommend, in fact,

You know, you need at least the last three year statements. Accountant prepared a minimum to a review engagement standard. If you’re doing less than that, anything can happen. We won’t know you, how much of your revenue is actually to be recognized appropriately. and to because you won’t know.

Have you got your, you know particularly if you’re in a business with recurring revenues, you may have overstated revenue and you may have understated liabilities.

I’ve heard some horror stories about, you know, some of these business transactions just in the negotiations where, you know, you will have a buyer and a seller sort of starting at a certain number. And then as the due diligence phase takes place, it’s like, they’re just hacking away, you know, hacking away at the number, right? So it’s like, if you leave any sort of opportunity for them, it’s just like when you, as a real estate investor,

You know, when I walk and do the inspection and I find out that, my gosh, this isn’t right. And that isn’t right. And the foundation needs this and the family, you know, and all of these fixes need to be done. That’s just a field day to sort of hack away on the actual originally agreed upon price. So I’m guessing that the books here that you’re referencing are going to be key. What are some other, maybe, you know, critical pieces that sometimes can really change what, you know, a seller might be thinking. their business is worth and then maybe in reality is a whole lot different once you get down the rabbit hole.

And this, yeah, so really what we get is people who are emotionally. stuck on a particular overvaluation. Comes back to the first point, if your financial records were never correct, and I kept thinking my sales are at this level, but they’re 25 % lower because of poor revenue recognition, and my expenses are actually 25 % higher as an example, that valuation that you thought your business was worth,

which for most cases is a number that people become emotionally attached to. you now start to have a gap between the buyer and the seller, the bid and the ask.

It’s like you’ve been living a bit of a lie, or just ignorantly unaware of what that true valuation might be based on some numbers that are a little bit more fictitious in regards to the…

You know, it’s like when you step, I step on a scale at home and it tells me what I weigh, but when I go to the doctor’s office once a year for the annual test, that’s the number that matters.

Right. there, there like thinking about valuations in particular, is there something like that that a business owner could do to help estimate what their valuation is going into this process or do they need like, obviously you’re providing guidance to help them with that component. So like, how do you do that?

but also how does maybe a listener, someone here today kind of have a takeaway to go like, I know exactly what my evaluation is or I could estimate it based off some criteria.

Unfortunately, can’t be unfortunately you can go on the internet number unfortunately because And it will be.

Maybe 20 years ago, your business was expanding. You needed office space or commercial space. You couldn’t find it. So you went and bought a plot of land and you built the building and you’re running your warehouse or your factory in that building. Now it’s time to sell your business. This is the business that paid off your house. This is business that paid off the building. This is the business that put your kids through university.

And this is the business is you’re now going to sell. There’s so much emotional attachment to that business. But if the earnings of that business are, for argument’s sake, a million dollars of EBITDA, which is a nice number, and I’m talking about correctly attributable EBITDA, right? That may often, in Canadian real estate, be worth much less than the 20 or 30 million dollar bill that you are also the owner of.

Some people understandably, right? Because there’s so much of your lifestyle, so much of your family’s instance was paid for by this business that maybe you started in your dining room table or you started in the basement or you started in the garage. And you’re proud of what you’ve done, but it served its purpose. Is this?

Right, now spinning off that, I think I’m imagining also a business that serves that type of purpose. I’m sure a blind spot in paper, probably you’ve had lots of scenarios where someone thought that they had a saleable business, but maybe they did not. how do we know, what do we need to do to prepare so that we have a saleable business? What is not a saleable business and what is?

Well, the biggest thing is that the new buyer needs something that is transferable to them. So obviously the financials need to support what they’re looking at. The valuation that those financials put forward makes sense.

Is this business completely dependent upon the owner operator? Like one of the questions I always ask is, when’s the last time you went on six weeks vacation?

And when you’re away, who signs the checks? And when you’re away, who makes the decisions? And ideally, you give me two or three names.

Well, I dial in from Europe at night and do this myself. That’s not a transferable business. If sales drop because the owner isn’t there, if the production slows because the owner isn’t there, books don’t get done because the owner isn’t there. That’s not a transferable business, or at least it’s transferable at a higher valuations that many businesses owners want. Particularly financial buyers are looking for businesses, private equity is looking for businesses that have a management team that can continue to run the business.

This is something I chat with a lot of our clients with those who have discovery calls with us and we’re chatting about their businesses and we’re talking about their runway and what their plans are. And one of the biggest challenges is how important are you to the business? Like in a lot of times, I think this is a bit of the paradox is that as a business owner, a lot of times why we want to sell is because we actually want to do less work. Like we don’t want to be working in the business anymore.

So selling seems like an amazing idea, right? I will now not have to work in this business anymore. But the problem is if the reason you want to sell is because you’re working so hard in the business, you probably don’t have much to sell. So what would you do? Like if you were, you know, I came to you, Carl, I’m working with you and your team and you know, maybe I have a business that could become saleable one day. Like what are we going to work on and what are you going to suggest for someone like me to go?

You know what, how like, what’s the first step to slowly tiptoeing that owner out of the business in the day? and maybe assume Kyle has key man risk.

So what you just started with is firstly, go find outside advice, whether it’s ourselves or other &A advisors.

Meet early. I’m talking, if you’re thinking you’re doing this seven years from now, today is a good time to meet. If you want to do this five years from now. Two years ago was a good time to meet. It sounds like.

Definitely, if you want to do this immediately, you are going to, that’s not a good idea. In Canada, just from a tax planning perspective, you need at least two years to prepare the business for optimize for tax reasons, right? For that lifetime capital gains exemption. Rush that. CRA needs, you need to do that two years before the transaction.

The earlier you meet, so typically when we meet with clients, we do that assessment around valuation, around financials, around management transition or succession plan. Through that process, which we do complimentary by the way, I’m going to learn, okay, Carl, you need to upgrade your financial statements so that they make sense to everybody and not just you. You need to have number twos in place.

You have to have functional leadership in place so that when you’re away, the business can run. Or if you get hit by a bus, Carl, the business can continue to operate. And you need to do all of these things well in advance. The sooner we get engaged, the sooner we can give that advice, the sooner you can start going down the path, putting the pieces in place as part of that preparation. You should never rush to process.

And get the right professional advisors. You should be talking to your wealth manager.

This is today. If you’re starting a business today, you should already be planning with your wealth manager for its eventual exit.

A lot of that’s the tax planning. A lot is that they can help with. The wealth manager is best positioned. Typically, as a business owner, you phone your lawyer reactively. Hey, this just came across my desk. I need defense. Or this came across my desk. I need your help. The accountants are great at doing a historical review of your business.

Only your wealth manager sitting down with you and saying, hey, Carl, when you grow up, what do you want to be? What does that look like for you and your family?

That’s very, very well said. And I would, I would definitely agree. have a lot of these conversations with the Canadian wealth secrets audience and those who reach out. And that’s one of the questions we’re always asking is about what I call the runway, you know, like, what does that look like for you and your business? And then what is the plan at the quote unquote end? Are you going to be winding up the business? Are you going to be selling the business? Like, what does that look like and, and sound like? then

we can start thinking ahead on how we want to structure things forward. So, you know, I hear things like, for example, you mentioned the business, buying a building, for example, is that something that we want to do inside the operating company or in a separate holding company? Most likely you’re going to want to keep those things separate, right? We’re going to want to make sure that, you know, we’re sending those dividends out of that corporation up to a holding company, you know, as well, right? Trying to keep things clean and clear.

and then ultimately trying to figure out, and I’m guessing this is some of the work that you folks would help with as well as going right now, how do you put the right leadership team in place so that this isn’t an app value ad purchase? So again, real estate analogy, I love going into a building where things have not been optimized because we know how to do it and we can put it in place. So I can offer a much lower price for that. And the same is true with a business. see someone who’s

turn businesses around and wants to come in to buy this business because they know exactly what they need to do in order to make this thing run clear without a whole lot of effort from the actual buyer. But that’s going to send the price way down. lots of great ideas here. you mentioned the capital gains, the lifetime capital gains exemption. What are some,

other common tax mistakes or blunders that you’ve seen happen along the way for Canadian incorporated business owners who do eventually sell their business. You would think that would be a much longer list, but it’s that simple.

It would one that is often ignored, it’s, it’s, once you’ve had it explained to you as a business owner, it’s pretty obvious that you should be doing it. But we come across business owners from time to time that if just not, aren’t aware of how structured or are they not that they need to know how to do this, but they should at least conceptually understand the commercial benefits personally to them and their family of doing something as simple as that.

You can get much more sophisticated, but start with the, you know, what I say, let’s crawl, walk, run here and let’s do the basics, soon and early.

Right. pretend for a sec, I don’t know the basics. Like give us, give us the, you know, the quick version. Yeah, give me a hypothetical.

Let’s hypothetical, right? Kyle has a $15 million revenue business. He thinks it’s storing off a million dollars of profit. We look at the statements, we say, well, let’s move them to, let’s get them restated by an accounting firm to review an engagement. And in this case, we’re fortunate enough to come out and the revenue is actually a million one. Good story.

Often we come out and go, the profit’s actually 950. We get a valuation on the business. We look at the assets. So he’s got real estate, maybe he’s got capital intensive equipment, maybe he’s got intellectual property, he’s got the opcode. Separate those things. That’s both from a creditor protection and just risk management.

Now who’s there if Kyle goes on vacation.

Well, I rely on.

My partner, John, that’s okay. when we sell the business, both of you are leaving, right? Is there an age difference? Is one of you staying, et cetera? We need clarity around that. there, well, we do have a great tier two management team, but they don’t have the money to buy the business. Boom.

We need a succession plan that’s separate from the transition plan because that’ll make the business more valuable to other financial buyers who are looking to buy the business and most likely allow your tier two leadership team to move up in their seats. Many of the transactions we’ve done, we did a transaction in London, Ontario, management with the company since it was 14 years old, was early 40s. He stepped in to be the president today. of this company we sold in London, Ontario. We work with business owners in that regard. Planning all of that out isn’t something you just put together in 30 days or 90 days. Some of this can take years.

You’re giving everybody a lot of great things to think about. It sounds like, you know, it isn’t just one thing. We’ve got to ensure that we’re putting those systems in place, the right people in place. But then we also have to make sure that we’re structuring ourselves appropriately along the way. And, you know, the way I’m hearing it is this is something that we’re going to be doing iteratively alongside one another, right? So we’re not going to, you know, create the perfect business for a sale and then worry about structuring, or we’re not just going to structure and then worry about

you know, making the business more saleable. This is something that we can be doing at the same time and really sounds like should be a top priority for any owner who is seriously contemplating a sale, be it in the next few years or in the longer term, you had said even as far as seven years down the road, I’m guessing the earlier that you can get the wheels turning, the easier, the more manageable it might be to get you to that finish line. Whereas

Two years feels like a long time, but if we try to do it starting today, that’s going to be, you know, that’s going to be tough to get everything cleaned up fast enough to try to get you to that finish line within those, those 24 months.

that team of, it takes a while to choose the right team of advisors for you. There needs to be an alignment and a fit between you and your wealth manager, your accountant, &A advisors who are a team that are helping you and your family with that exit strategy. And we talk about it in terms of strategy, because it’s a multi-year process that you’re undertaking. one of the benefits of all this as well,

It’s the business benefits. You become a better operator because you’ve got these external advisors who you’re now. I don’t want to use the word accountable to you’re going to explain things to them. It’s all been in your head and just a practice of having to explain it to others is what bodes well when the time does come to sell your business. You’re not going to feel. But you have to.

uncomfortable talking about your legal structure or your holding companies and other operating companies. You’re going to understand all of this. You’re going to understand about your financial systems.

You know, all of that takes time to absorb, learn, to get comfortable speaking about. You’re going to be more sophisticated operator. You’re going to become a better leader. You’re to become better at assessing out next generation talent to succeed you in leadership all along in this process.

You’re going to exist. It just creates a much more resilient outcome.

You know something, Carl, and I’m curious about your thoughts or your take on this, or maybe just from past experience. I, I’ve always grappled with, I’ve, I’ve worked with a lot of business owners that are, you know, contemplating a sale either in the short, medium, or even longterm. And one of the pieces that I always sort of get stuck on, and I’m curious how often you bump into this scenario is that, you know, the most valuable business that you can sell is the one that you, as the business owner,

have the least hand in, right? So it’s, become systematized. You’re not in the day to day. All of these things have lined up perfectly. That’s going to get you the greatest value for that business. On the other hand though, if you get a business to that place and that business is profitable and therefore, you know, investors are interested in taking over this business, I guess the question then becomes, you know, why sell the business? So

Do you run into this along the way? It’s one of those pieces where, you know, I feel like the people that want to sell the business, the most are the ones that are most heavily involved, which means the value of their business is very low comparative. And then those people who have done a great job systematizing and, you know, have made it essentially turnkey and are ready to pass this thing along. I guess what’s the motivation at that point, you know, to actually sell, is it just risk off? Is it potentially selling a portion?

And how often does that happen where, you know, let’s say a seller does end up maintaining, you know, a, a third of the company or some sort of stake in the company.

Here’s a common situation. Privately owned businesses in the size we sell are led by people born prior to the 1980s. Typically, these business owners have 60 to 80 % of their personal wealth tied up in a single stock called their company. So when they’re working with the wealth manager, they’re appropriately diversified

in their investment portfolio, but they don’t look at their business as part of the investment portfolio. Right? So you may have $500,000, $2 million invested in RSV, TFSA, direct investment account, a bunch of different things. You may even, you know, real estate investments, but the largest piece of that family’s investment, 68 % is still tied up in that business. Right now.

If a wealth advisor and investment person came to you and said, here’s the strategy, Carl, invest 80 % of everything you want in this one stock. I’d be looking for a new advisor. You have to look at your business as part of that diversification strategy. Or you can be less diversified when you’re younger.

and you’re weighted towards growth. as you go, you need you’re more worried and you’re less worried about the return on capital and you’re actually starting to become worried about the return of the capital. Right? You look for lower income investments and it’s not the business is just one of those investments.

That’s a great analogy for sure in terms of remember being 19 years old in Vancouver and they had the Vancouver Venture Exchange and for $200 you could buy a penny stock. And if it didn’t work out, well it was 200 bucks and it was fun. A little bit about the stock market. Well, I’m not 19 years old anymore. I can’t afford to have that fun anymore.

Right. I learned anymore. Unless I could do it for $200. Even let me do that. Yeah, it’ll be a lot less of your net worth.

You mentioned, you know, you kind of were talking about holdcos, appcos a little bit ago and I’m curious because we every now and then we come across business owners who have sold their businesses but what they ended up, you know, doing is they sold their holding companies that included operating companies like is because that sounds messy, right? Like it sounds like, hey, I’m

My holding company was supposed to hold certain assets for myself, but also it holds my shares for my operating company. Is that too far into the weeds here or is there some nuance about why someone might sell a holding company that includes an operating company or just sell the operating company?

Yeah, it does get deeper into the weeds on the tax and the legal structure. I think you’re getting into like section, forget the number, the rollovers. lot of that, at that point you need tax advice, legal advice, because if you do it wrong,

CRA will be at your door to let you know, but right, but they’ll ignore you. So it does get deeper into that, but sometimes that gets messier because the transaction wasn’t properly, everything wasn’t properly set up in anticipation of eventually selling the business. If you do to, if something was that.

And that’s where too, you know, we see a lot of people like the concept of a trust, you know, being open comes in, like one of the big questions I have for people when they are considering a trust is are they planning to sell and what does that look like and when’s that going to happen? And how do we get other family members involved? So definitely, I think a little bit in the weeds here. Here’s one though, you had mentioned the CRA showing up at the door. We have someone in the chat asking about

You know, what about a scenario where a business owner sells their business, a buyer comes buys the business and let’s say there’s an audit by the CRA down the road. Who’s responsible for any maybe taxes owing before the sale? Is this something that is stipulated clearly in the buy sell or not the buy sell agreement, but the actual contract to buy?

What does that look like and sound like? And it sounds to me like this individual sort of just thinking like, how do you protect yourself both as a seller or as the buyer of a business that something that happened in the past isn’t going to come back to hurt either the buyer or the seller or both.

Sadly, all sorts of scenarios like this and messier ones have occurred. One of the other pieces of advice is not only do you need a wealth manager, the lawyer that you use to incorporate your business may most likely not be the lawyer that has the M &A experience that you need when it comes time to sell your business. Another partner, maybe within the same firm who does M &A transactions so that the share purchase agreement, if it’s a share sale,

is appropriately a document how we deal with these types of liabilities, the reps and warranties that form part of the agreement that conceptually as the owner of the business, I am responsible for everything up until the second I sell the business and anything a second later, the buyer is responsible for it should be documented in such a way that that’s the case. Spell out that.

How part of selling your business and part of the due diligence that the buyer will do is they will explore any tax issues. They will reach, they will contact the CRA ahead of time, depending on the size of your business. Now you do have buyers that aren’t thorough as well. You know, in life you do get what you negotiate. And a lot of that has to do with the advisors. You surround yourself with whose job is there to optimize to your part, to your benefit and help avoid a number of these things.

very, very helpful there. And I think that clarity, the due diligence piece is so key and then ensuring that things are written up very, very specifically so that you protect yourself, buyer, the seller. Tanya is asking about, you know, whether, and I don’t know if this is maybe triggered by the idea of the regardless of whether you’re the

trying to maybe diversify your investments a little bit. As you had mentioned a little earlier, a lot of incorporated business owners are very heavily invested in one single company being your own company. That’s great. You have a lot more control, but of course that means the risk is very high if something was to go wrong. She’s asking, would you recommend selling 10 % and under to a few potential shareholders or would it be easier to sell in the future if the business was not so owner diversified?

Any thoughts or wonders on that? And then the 10 % number actually gives me an idea to share after as well.

In what we call in our business, and there is a whole group of financial buyers out there who would love to talk to you about exactly that. So the buyer, I’ll use John as an example, John wants to sell a minority of his business. He still wants to be the president. He still wants to call the shots. He wants to run the business. He sees another 10, 15 years of growth that he wants to lead. But he’d like to take some chips off the table. Just a little private equity loves a transaction like that. They will partner with you as the business owner.

Sometimes minority, other times they will buy the majority. So now you’ve de-risked and call it in our business, you get two bites from the apple. But the first bite, when you bring in the financial partner and often in those scenarios, because once those financial partners come in, and I’ll stick with my John example, part of his growth plan was to grow organically into new markets and new products. But now because he’s got

financial partner, they say, well, John, we could do this faster. We have the capital. Why don’t we just buy your rivals in Manitoba, in Vancouver, or in Halifax? You continue to run the bigger business. And friends of mine who have done that often found that the you know, a good friend.

Friend of mine, he sold his business, was able to pay off his house in West Vancouver and pay off his place in Whistler on his first transaction. His final transaction paid off all of his children and grandchildren’s houses.

Yeah. And I was thinking, know, Tanya’s question, you know, was about, you know, selling the chunks. And in a way, my thought was that you, it’s almost like a catch-22. You think you’re selling your chunks to diversify you so that eventually you can sell for a larger multiple because, you know, you’re not so, they’re not so heavily, you know, you’re not so heavily verified on the owners. Like, but you also have to prepare that business to sell it at 10%. Like no one’s going to buy.

Like private equity is not going to like invest that 10 % unless it’s already ready to go and ready to, you you know, we’ve reduced key man risks. The financial books are in shape. You know, if you’ve got the standard operating procedures down, processes are in place, like all those things you talked about at the beginning of the session still apply whether you’re selling 1 % or 90 % or 100%.

If they really want the asset, most likely it’s an add-on for something else that they already own. You will see the operating CEO of the business they’re going to add you to be more involved. And quite frankly, at that point, don’t care so much about your systems and your processes and your people. And at that point, they’ll.

They’re not part of the future unless they turn around themselves and start to produce value. But if you want to be the leader of a platform that’s supported by private equity, you need to put all those things in place, right? You need to, basically it’s an intro. It’s not only selling your business, but it’s an interview for you as a CEO that you can run a more sophisticated business with proper financial reporting, coaching and mentoring a leadership team behind you.

and processes and policies and procedures in place. That you have de-risked the business and that you’re worthy and a great steward of future of would become other people’s capital.

This has been a really helpful conversation. know it’s reiterated a lot of the things that I’ve thought about in the past. I know you and I have had conversations in the past as well. And you know, a few new ones have kind of popped up and you know, you live and every day you’ll learn something new. I’m wondering for those people who are with us here watching this recording later, what would you say if there’s just one big takeaway that you want these incorporated business owners who are tuning in here today to take away with?

What would that be from this conversation as they look ahead to the potential sale of their wonderful emotionally charged business that they’ve been growing for probably many years.

Entrepreneurs are typically successful if they’re prepared. When preparation meets opportunity, shine. It’s about preparation. Preparation, it starts with learning. We publish a ton of content on our website, on social media. I’ve got a book coming out in a month or so that just sort of is a roadmap that covers this off in about 20 chapters. is when on. And so.

start building that advisory team, the wealth manager, the accountant, the tax, all of this is preparation, preparation. You don’t show up for the Olympics. Right, the that I was always.

Right? The way I always looked at it is like, even though you might not think you’re going to sell your business, your business is still better and more valuable as a business if you prepare like you’re going to be. And then therefore there’s no time like now to get ready. Like you were saying prepare, prepare. like you should always be preparing for that moment. And then your business is just gonna be better off and well run just because you prepared like you were selling it, whether you’re gonna sell it or not.

Yeah, I to thank you for joining us here today. If there’s any more questions that come in, we’ll make sure we send them and fire them your way. We’re going to in the recording, we’ll make sure we share your website and a link to maybe where we can people can grab your book. But again, we want to thank you for joining us and sharing your expertise and your insights here with the Canadian Well Secrets Group.

Thanks everybody. We will be ending this recording now. However, for those who are wanting to stick around for a few minutes to ask any questions or any wonders, Carl, feel free if you want to drop a link or any contact information down in the chat for anyone who might be interested in reaching out.

Canadian Wealth Secrets is an informative podcast that digs into the intricacies of building a robust portfolio, maximizing dividend returns, the nuances of real estate investment, and the complexities of business finance, while offering expert advice on wealth management, navigating capital gains tax, and understanding the role of financial institutions in personal finance.

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