Episode 253: He Wanted to Retire at 55… But His Business Wouldn’t Let Him

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Are you building a business you can actually step away from—or just creating a job that depends on you forever?

If you’re a Canadian incorporated business owner thinking about retirement, succession, or a possible exit, this episode digs into the messy middle most people face. What happens when your business creates strong income, but only because you are still carrying so much of the load? You’ll hear a real-world discussion about how to start shifting from being the engine of the business to building something more sustainable, valuable, and flexible for your next chapter.

In this episode, you’ll learn how to:

• think more clearly about whether your best move is to sell, stay, or gradually step back
• increase the value of a business by making it less owner-dependent and more self-sustaining
• explore practical transition options like hiring the right operator, profit sharing, and phased ownership over time

Press play to hear a smarter way to prepare your business for freedom, flexibility, and a more confident exit.

Resources:

• 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.

In this episode of Canadian Wealth Secrets, we explore how financial planning and wealth management shape a smarter exit strategy for business owners who want financial freedom in Canada without sacrificing a profitable company too early. The conversation covers corporate wealth planning, tax planning, systematic investing, and practical investment strategies for turning retained earnings into long-term wealth building, while comparing options like hiring leadership, profit sharing, phased ownership, and improving business value before a sale. It also connects to a broader Canadian wealth plan through financial vision setting, financial buckets, passive income planning, RRSP optimization, optimizing RRSP room, salary vs dividends in Canada, personal vs corporate tax planning, business owner tax savings, corporation investment strategies, tax-efficient investing, capital gains strategy, legacy planning in Canada, and estate planning in Canada. For Canadian entrepreneur finance, this episode offers practical retirement planning tools, financial systems for entrepreneurs, corporate structure optimization, and wealth building strategies in Canada for anyone pursuing financial independence in Canada, a modest lifestyle wealth approach, or building long-term wealth in Canada through diversification, including real estate investing in Canada, real estate vs renting, and even related considerations like mortgage refinancing and micro habits that support disciplined financial decision-making. 

Transcript:

Kyle Pearce: So John, I just got off a call earlier today. We weren’t planning to have this conversation for this podcast episode, but it comes up in some way or form so often that I think it’s worth us digging into. And it’s this idea of the incorporated business owner eventually preparing for an exit. We’ve talked about exits before, but this one was a really interesting one. So I’m gonna use it as a case study.

Kyle Pearce: This particular individual — we’re just going to say he’s from Canada — has experience in the education space. So we hit it off. They were administrators and they’ve done some things. They understand how the education system works. They’ve done some great things and they’ve actually started a business and they’re really great at what they’re doing. And ultimately, at the end of the day, they’re at a place now where this business is generating them enough for them to live off of.

Kyle Pearce: They’re not taking a huge salary because they don’t need it. They’re fairly simple in terms of their spending and probably, you know, rightfully so, because they also want to make sure that they can be quote unquote financially free whenever they’re ready to. And they’re at an age now, I believe somewhere around 55, and one spouse is not necessarily super eager to get out. The other one’s getting a little tired in the business and is on more of the, you know, sort of —

Jon Orr: It’s the educator mindset. 55 is when my retirement — I got into education, my pension said 55 was the day I was gonna retire. That’s my 85 factor. So you can imagine, as past educators, we can feel that hey, that’s my retirement, and therefore I hit it, I should be able to sit at home and eat bonbons.

Kyle Pearce: Yeah, 100%. And I would argue like you and I as well, John — we always said to ourselves when we went full time into our entrepreneurial journeys here, we were always doing the side hustle thing, we always had like a billion things going on, we loved it, kept us busy. We still though always said like, I think I would look back and regret if we hit our retirement age as an educator and felt like we weren’t able to live at least the same cash-flowing lifestyle that we would have had we stuck it out.

Kyle Pearce: And that was a big goal for us. And I’m happy and proud to say that unless we do something completely boneheaded, I think we’re going to be well positioned. Unless the business goes belly up or we invest in some new thing called MIT coin or whatever it is. But ultimately, it’s like, you know, we’re in a position where we’ve got that checked off.

Kyle Pearce: And for this particular individual, it’s sort of the same thing. And they certainly don’t want to go and sit and eat bonbons. And I would argue most business owners don’t want to do that either. Oftentimes they just want to remove themselves from that business, because maybe the business has them growing tired, maybe they just need a break, maybe they want to start something different, right? And I think a lot of times entrepreneurs are like that.

Kyle Pearce: You see so many founders out there — I mean, I don’t know if you know this, but one of the founders of PayPal was Elon Musk, and he sold that share and then went on to do this other thing called Tesla. And then now he has SpaceX and all these things going on. So these people like to change things up. And in this particular case, they’re at this spot where they have enough money, they’re paying themselves a small wage, but the business is retaining about $200,000 a year, which is fantastic.

Kyle Pearce: But the business itself right now is fairly heavily reliant on them in making it as successful as it is. So it’s going really well.

Jon Orr: So they’re needed.

Kyle Pearce: They are needed. And they do take vacations, they still have, I would argue, a little more freedom than maybe someone in a nine-to-five who has to request vacations and things like that. But they’re now starting to look ahead and say, with a three-ish year runway, maybe selling the business. And we started chatting about what might that business actually be worth to someone if they’re going to take it over.

Kyle Pearce: But here’s the caveat. They’re going to take it over in order to try to produce the $200,000 in retained earnings that this couple are currently carrying all the weight on their shoulders to make happen. So meaning the new person has got to come in to buy a business that they either need to bring in people themselves to replace the current owners, or they need to replace them with themselves. Like they’ve got to come in, pay a certain amount of money in order to get $200,000 of retained earnings, but they’ve got to either do the job themselves and pay themselves for it, or they’ve got to hire someone to be able to do the job.

Kyle Pearce: And can they do the job? Do they have the right person? What is this business going to be worth if I need this $200,000, but it’s actually not a turnkey business — it’s not like I can just buy the business and know $200,000 is gonna hit my retained earnings every year with my eyes closed.

Jon Orr: So what you’re saying is that they’ve got some options, but in a way the non-conditional move is they want to continually have $200,000 in income for themselves no matter what. Which is like, if I sell it outright, I want to always have $200,000 every year — I need that to live on in my retirement. That’s my plan. If I don’t sell it, if I hire a CEO or a manager to come operate it, then I need to generate retained earnings of $200,000 to send to the shareholders.

Jon Orr: And you’re saying one is that it’s not a saleable business yet. And if it is — I guess all businesses technically are saleable at some point, it just might not be worth what they think it’s worth. And therefore if I sell it for an amount, I have to sell it for a good chunk of money so that I could then take that money and invest it to get $200,000 every year.

Jon Orr: And it sounds like what you’re saying is that’s not what it’s worth right now. So their option is to get it ready so that it could sell for that type of money. And if maybe that’s their likelihood, then that is a no brainer — take the next three years to prepare my business in the way that it operates and generates retained earnings of $200,000, and it has a manager who’s committed to making that happen for the long haul. Then I don’t have to sell my business, I can just hire that person. Or they’re not doing anything, and they have to just work for the $200,000 forever.

Kyle Pearce: Right, exactly. And we both know, even just from a peace of mind standpoint, even if it turns out that they don’t want to eat bonbons at home and they actually want to work longer than three years, I think there is certainly a certain level of satisfaction if you’re able to get your business to a place where you don’t have to be there all the time to make sure everything’s working.

Kyle Pearce: If you can get it to a place where it’s a well-oiled machine, you get two aspects. One is you get your time back. But then the second one is you actually get more value for that business, and maybe that value approaches the point where you can say, maybe it’s closer to me investing in the markets or investing in something that’s gonna give me something closer to this $200,000 in retained earnings per year.

Kyle Pearce: But I would argue if they’re able to get $800,000 for this business in three years, that’s only four times the retained earnings. Now, I’m not an expert in this particular business or industry in terms of the multiples. Sometimes multiples work certain ways for certain businesses. But the one nuance that we know to be true is that unless the business is operating on its own without the buyer getting in there and doing the work, the more work to be done by the buyer, the less it’s worth.

Kyle Pearce: Like they’re basically saying, I’m going to take a chance. It’s just like when I’m buying real estate — if all the rents are low, the property should sell for much less because the current landlord didn’t take the time and effort to get everybody out, improve the units, and get nice strong leases with great tenants. Basically what they’re saying is, I don’t want to do that work and therefore I can’t benefit from the additional uplift on this building. So the new landlord comes in and says, I am willing to do that work, but only for this price. And the same is true with the business.

Kyle Pearce: And I would argue it’s almost even more important. Let’s say I could get a million dollars for this business. 10% a year on a million bucks, I get $100,000. That’s half of the retained earnings it’s getting now. Now imagine I wave a magic wand — if I can spend these next one, two, three years reframing my focus from being in the business to rather working on the business, with the new goal being about how do I make this more self-sustainable and put us in a position that maybe we get a great buyer with a great offer, or on the other hand, maybe we don’t actually have to sell because this thing’s working much like a machine.

Kyle Pearce: And between bonbons, as John would say, I would just make sure that the oil is in the machine and that the lights are on and everything’s going the way it should, with minimal interruptions compared to working right in the business nine to five every single day.

Jon Orr: Those are the options for sure. So where did this conversation go? It sounds like you unpacked the scenario, they conveyed what moves they could make. Where did this conversation end up?

Kyle Pearce: Yeah, we landed somewhere in the middle, as is the case in so many scenarios. It was like, let’s aim for this thing to be fairly self-sustainable, but let’s not necessarily have a hard rule of thou shalt sell at the end or thou shalt keep at the end. We actually landed somewhere in the middle where they said, you know, if I’m going to be bringing somebody into this business to take on that person’s role, by bringing the right person in and helping to train and guide them — in a perfect world, that would be the person that eventually runs the business over the long term.

Kyle Pearce: So then we started talking about, how do you motivate somebody to want to do that work? Obviously a good salary that’s going to attract a good employee, but will it keep that employee? So we started talking about profit sharing as an option. For example, hey, if the company is making $200,000 in retained earnings, I’ll bring you in and pay you this much. And if you can help us build the retained earnings from $200,000 to $250,000, then we’re gonna share half of that upside with you — you get a $25,000 bonus. And these are just numbers we’re throwing around at this stage.

Kyle Pearce: Or could it be, hey, listen, if you come on and you’re the right person, you actually have the opportunity to slowly acquire some of the shares of this business gradually over time. Which is really helpful from a number of perspectives. First off, they don’t necessarily have to give up the entire company all at once like ripping the bandaid off. They can slowly over time, maybe it’s over a 10-year period, slowly pass shares on as they’re getting older into their slower-go years of retirement.

Kyle Pearce: They may not want to have anything to do with it down that road, but there are so many different in-between options here that can be done while they’re on this path to trying to make the business more self-sustainable without the actual owners being at the helm.

Jon Orr: Yeah, those are good strategies. Let me ask you this — why would you believe that the $200,000 of income every year is the non-negotiable? When you think about retirement, these are past educators. So why is that such a sticking point for them, to start being creative around ensuring that the business operates to get that type of return forever? Sure, they could structure that. That’s in a way a great pathway to go down, and why wouldn’t you if you could? But another point is it sounds like they want their $200,000 because that’s their retirement strategy, and therefore they have to do this in order to have income in their retirement.

Jon Orr: It makes me think about the two flywheels. They’re still stuck on the first flywheel. What about their second flywheel? Which is like, when you take your retained earnings every year in your flywheel and go, let’s take that — what portion of my salary or my income am I putting towards my second flywheel? Which is my investment flywheel, the flywheel that we want to turn on its own and generate more momentum because it creates its momentum itself.

Jon Orr: It’s like real estate helps you do that in terms of investment. Your investments in terms of the stock market or maybe the dividend accounts that you’re building will help do that. And when you’re going, okay, is it so important that we get the $200,000 retained earnings every year so that they can contribute to the flywheel or they need it to live? And if they need it to live, where’s the rest of the retirement amount? Is that over here doing something different? And are we not blending the two things together?

Jon Orr: Because maybe the move is to sell the business and walk away from it and know that you’re gonna get less than your $200,000 — or let’s say you get your million, and it’s only $100,000 every year that you could put into the markets, and you’re getting almost $100,000 every year. That’s your second flywheel in operation. Is there more second flywheel and operations somewhere that we’re missing here in terms of helping them make a good decision?

Kyle Pearce: Yeah, I love it. They do have, I’m going to call it a smaller RRSP. They actually did a lot of work abroad and things like that, so they didn’t have as much RRSP room as say an educator with a LIRA or something, if you know, they were Ontario teachers or whatever it might be. And I actually was sort of the stickler on the $200,000.

Kyle Pearce: They actually live on much less. They only need about $80,000 after tax right now for their spending. So they have a very low requirement on that front. So part of this plan over these minimum three years — remember the original runway was like a three-year idea, a three-year plan — was let’s make sure we get as much of the retained earnings in the meantime going into the flywheel.

Kyle Pearce: But it might mean sacrificing a little bit of those dollars that could have gone into the secondary flywheel, the investment wealth-building financial freedom flywheel, in order to pay the new person coming in. So there is sacrifice in the shorter term. But then what you end up with — the ideal outcome — is that you get the right person in, you pay them a reasonable salary. The current owners no longer have to pay themselves salaries because they’re gonna slide out. So the income that they’re paying themselves now would slide over to this individual. And they’d still be able to continue using a part of the retained earnings to continue pushing on their secondary flywheel, the wealth-building flywheel.

Kyle Pearce: However, you’ve made it very clear — if they ripped the bandaid off now, they’re in a position already, or by year three if they did nothing more, where you know, if they are able to get $800,000, that’s going to help them along with the other $200,000 from year one, $200,000 from year two, $200,000 from year three, which we’re gonna allocate a significant portion to reasonable long-term assets. We can’t get too risky if they’re that close to retirement. And potentially — and this is a big one people ask — what about corporate owned insurance?

Kyle Pearce: If it’s only a three-year run and then you’re gonna be out and done, you’re not gonna earn any more retained earnings, you’ve sold the business — I’d argue probably less of an approach there. You’d probably just slow drain out of the corporation and eventually close the corp, or keep the corporation open with whatever investments you have in there, but you wouldn’t have enough retained earnings over a long enough period of time to really justify a significant policy in there. You might have something small just for your estate or something along those lines, but it would be more of a slow drain process.

Kyle Pearce: But if this business — if they do decide they want to stick around longer, or if they do want to sell, maybe they can sell for a larger number — those dollars are likely going to be enough for them to satisfy their retirement needs. The question is, are they willing? Are they okay with leaving all of that extra on the table? And these are some of the harder choices that we have to make. For some people it’s like, I’m willing to leave more on the table just to be done and walk away. But based on our conversation, as I mentioned, these people are not planning to do nothing.

Kyle Pearce: And actually one of the two is actually not wanting to leave the business within three years themselves. They want to continue working in the business and doing some of that work. The other one isn’t loving their role. So I’m like, hey, maybe we try to replace your role first, and then you can start focusing on some other aspect of the business. And this really, in my opinion, seems to have lit a bit of a flame in this individual to look at this next phase as maybe being different from the role they’re in now. Which might be exactly what they wanted or needed, so that they aren’t just walking away completely and sitting at home doing crosswords.

Jon Orr: Right, right, yeah. And you know what, this is a case study we’re unpacking, and this is typically what we do with our clients when we hop on calls with them or with people who are just looking to bounce ideas around. And it sounds like when you said lit a fire here — when they got on this call with you, what they really needed to do was talk through their strategies, and you helped them talk through those strategies so they could see what their next steps were.

Jon Orr: Which is what we try to do with everybody. We are an education-first firm. Canadian Wealth Secrets itself is focused on educating people and giving people recommendations based on facts, based on key understandings. We want to do that for you. Sounds like you did that here for this team. And they stepped away from that call with a clearer vision of their financial plan, which is one of our four zones of a healthy financial plan.

Jon Orr: Zone one being a wealth reservoir — a second zone is that opportunity fund slash emergency fund slash investment fund that has multiple purposes, can be flexible and liquid at the same time. The third zone is both optimizing and thinking about sustaining moves — structure and optimization. Sometimes these are tax efficient strategies that you do need to consider. It’s an important part of a healthy financial wealth planning system.

Jon Orr: And then the fourth part is about legacy planning and estate planning and thinking about sunsetting or thinking about exiting businesses and how do we do that strategically to help us achieve our goals and move our wealth from one generation to the next. So sounds like this call helped them get the clarity they needed in terms of their vision and also develop those strategies for that fourth component.

Kyle Pearce: Well, and the beautiful part about it is they’re exploring — we’ve given them some things to read from our book list. One of the books is Traction. It’s a great starting point for them to begin. The other aspect is because we aren’t a fee-for-service company, we’re an education-first company. We’re working with these clients to help them determine what their future, their vision looks like. We’re really in stage one right now. And as we work through that, there are going to potentially be some opportunities for us to assist them along the way, whether it’s the wealth management side, whether they do end up requiring some sort of corporate owned insurance, be it for long-term estate planning or potential leverage opportunities — we’re gonna be exploring that along the way.

Kyle Pearce: And the beautiful part is there is never an obligation for the client to work with us. This is something that we’re going to extend out to the Canadian Wealth Secrets community. We love digging into these conversations and we love helping to educate you more to determine what is a good fit for reaching those goals. What’s worth leaving behind, even though maybe on paper it might make sense. And what should I be hopping on right now? So if you’re interested to learn more, you should reach out to us over at CanadianWealthSecrets.com forward slash discovery, and you can book your free call for us to hop on and try to make sure that you get at least one big takeaway and a whole bunch of learning.

Jon Orr: Just a reminder, the content you heard here today is for informational purposes only. You should not consider this information as legal, tax, investment, or financial advice. Kyle Pearce is a licensed life and accident and sickness insurance agent and the president of corporate wealth management here at Canadian Wealth Secrets.

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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