If you own a business, you may follow a “do it now” philosophy—which is, of course, necessary to keep things running smoothly. Still, you need to think about tomorrow, which means you’ll want to take action on your own retirement and business succession plans.
You’ve got some attractive options in these areas. For example, you could choose a retirement plan that offers at least two key advantages: potential tax-deferred earnings and a wide array of investment options.
Plus, some retirement plans allow you to make tax-deductible contributions.
In selecting a retirement plan, you’ll need to consider several factors, including the size of your business and the number of employees.
If you are looking to create a retirement plan for yourself (and your spouse, if employed by the business), you might consider an Individual Pension Plan.
If you would like to set up a plan for your employees as well, you might want to investigate a group RRSP or Defined Profit Sharing Plan. Your financial adviser, working with plan design professionals and your tax adviser, can help you analyze the options and choose the plan that fits with your combined personal and business goals.
Now, let’s turn to business succession plans. Ultimately, your choice of a succession plan strategy will depend on many factors, such as the value of your business, your need for the proceeds from the sale of the business for your retirement, your successor, and how well your business can continue without you.
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If your goal is to keep the business within the family, you’ll need to consider how much control you wish to retain (and for how long), whether you wish to gift or sell, how you balance your estate among your heirs, and who can reasonably succeed you in running the business.
Many succession planning techniques are available, including an outright sale to a third party, a sale to your employees or management (at once or over time), or the transfer of your business within your family through sales or gifts during your life, at your death or any combination thereof.
Many succession plans include a buy-sell agreement. Upon your death, such an agreement could allow a business partner or a key employee to buy the business from your surviving spouse or whoever inherits your business interests.
To provide the funds needed for the partner or employee (or even one of your children) to purchase the business, an insurance policy could be purchased.
Your estate plan — including your will and any living trust — should address what happens with the business, in case you still own part or all of it at your death.
The best-laid succession plans may go awry if the unexpected occurs.
All these business succession options can be complex, so before choosing any of them, you will need to consult with your legal and financial advisers.
Whether it’s selecting a retirement plan or a succession strategy, you’ll want to take your time and make the choices that are appropriate for your individual situation.
You work extremely hard to run your business — so do whatever it takes to help maximize your benefits from it.
Deborah Leahy is an investment advisor with Edward Jones, member of the Canadian Investor Protection Fund.