Whether they want to sell their business or pass it on, owners need an expert eye to avoid common pitfalls
Bill Black is no stranger to transitions. In 1992, he got licensed and began his career in the financial-services industry after closing the door on his previous professional life in the telecommunications business.
“I had done a lot of research into possible new paths,” Black said. “Among all my criteria, the top one was having the ability to get up every day and serve clients meaningfully. And it turned out financial services had all I was looking for.”
After a few years at Investors Group, he moved to the independent side and eventually found himself with Investment Planning Counsel. Gravitating naturally toward working with business owners, he is now the president at Exit Planning Group, a practice that’s focused on helping entrepreneurs who are just about ready to move on to a new chapter in their life.
A former and current business owner himself, Black has unique insight on the challenges and opportunities that most clients encounter. He also works hard to keep advancing his professional education; he holds the Certified Exit Planner designation, issued by the Colorado-based Business Enterprise Institute (BEI), which he said translates well into the Canadian context. And with a team that boasts well over 100 years of accumulated experience working with business-owning clients, the firm is well-suited to provide advice in a critical stage of a business’s life cycle.
“In 2017, the Business Development Bank of Canada did a survey that said close to 40% of all entrepreneurs tend to exit their businesses within five years,” Black said. “BEI did one in 2016 and found that only 17% of business owners planning to exit had a plan in writing, even though 80% said a successful business exit would be the result of planning and action items they would implement.
“Closing that gap is what we’re here for,” he continued. “These people are busy working in their business, and we need to help them work on their business.”
According to Black, most entrepreneurs engage his firm in their 60s, which leaves an uncomfortably narrow window for exit-planning purposes. The planning and preparation process takes a year up to five years, depending on the complexity of the business and the desired transition, the involvement of any shareholders, and any issues that arise along the way.
“Some business owners who approach us, particularly those with mid-sized enterprises, already know what their problems are, but just haven’t had the time to address them,” he said. “Many others have issues that aren’t known right away. To uncover those, we have a seven-step business enhancement process that was developed by BEI. It’s very well defined, and it allows us to determine what needs to be worked on and in what order to prepare for the transition.”
Too often, Black says, he finds that clients haven’t completed a valuation of their business. Others haven’t taken steps to prepare their management team for the eventual transition, or realign the management ahead of their departure. And in many cases, owners don’t have their financial reporting in good order. By following their process and working closely with clients, he and his team are able to disentangle these intertwined issues over time.
“We’ve also found strategies to improve business valuations, helping clients go from saying ‘I’m only as good as what I sell next Thursday’ to ‘I have recurring revenue,’” he added. “Moving a business from an ad hoc or sales-oriented revenue stream to one that’s more repeatable raises its multiples and ensures the client leaves no value on the table for their family.”
The contentious shifts in small-business taxation have been on the radar of many wealth firms; Black says his team has had to refocus structures for some businesses to make them more effective and efficient for the owners. He also has his eye on an array of federal-level changes that would pull back the veil on trusts, which are set to take effect in 2021.
“I understand how that will ferret out inappropriate behaviour, but there are still good uses for family trusts,” he said. “It’s just become more critical to stay onside with the legislation and the intent behind it.”
Given the continually changing policy landscape, professional advice is becoming more crucial for business owners. Many business owners are already surrounding themselves with tax and legal specialists; however, Black argues that exit planning is a problem that requires unique expertise.
“It’s no different than when Wayne Gretzky, one of the greatest hockey players, had three different coaches,” he said. “We all need to surround ourselves with experts to ensure that we’re able to seize the opportunities that come within our reach.”