New data is calling into doubt Canadian business owner’s succession plans, but insurance can ride to the rescue.
New data is calling into doubt Canadian business owner’s succession plans, but insurance can ride to the rescue.
A CIBC study shows an alarming number of Canadian business owners don’t have a succession plan, but one advisor is touting life insurance as the best way of making sure a buy/sell agreement is worth more than just the paper it’s printed on.
“It reminds me of the Seinfeld episode of taking your reservation,” said Jorge Ramos, senior estate planning consultant at The McClelland Financial Group at Assante Capital Management Ltd. “People are able to take your reservation but keeping your reservation is the most important part. The buy-sell agreement is just like a reservation. The insurance, that’s keeping the reservation. That ensures you will fulfill the buy sell agreement.”
Without a properly funded buy/sell agreement owners can be left in the difficult situation of trying to buy out their ex-partner’s spouse, usually at great cost.
“In the absence of insurance, where does the money come from?” said Ramos. “It comes from the business, which could cripple the business. It could cripple your personal net worth because then you have to take a loan out.”
And new data shows an alarming number of Canadian business owners don’t have a succession plan. A recent CIBC poll shows only 57 per cent of Canadian business owners who are within 10 years of retirement have business transition plans. More concerning, the vast majority at 80 per cent admit that their plans are informal.
“Too many business owners are taking a false sense of security from having a transition plan that is informal, which means they are taking chances with their business and their retirement income,” said Shelley Swanlund, head of small business at CIBC.
But insurance can help clients formalize their plans by figuring out a way to fund it.
“Insurance is critical,” said Ramos. “It’s easy to say my partner will buy me out, but that might not be practical if the cash isn’t available. Aside from insurance, the only other option is to actually put money aside to fund that liability. If you put money aside that’s money that’s not used in the business. Insurance is a fraction of the cost of funding it dollar for dollar.”
In CIBC’s online survey of 803 randomly selected Canadian business owners, only 14 per cent had created their plan with the help of professional advisors, while 6 per cent prepared a formal plan on their own. Perhaps more troubling, 40 per cent of business owners indicated that they had yet to identify a successor.
“The difficulty, without a doubt, is getting the business owners to work on his business and not just in his business,” said Nick Godfrey, owner of ProInsure. “Part of the problem with running a business is finding the time. I think they know they have a problem, it’s just getting them to take action like anything else, but that’s just kind of insurance in general.”
A CIBC study shows an alarming number of Canadian business owners don’t have a succession plan, but one advisor is touting life insurance as the best way of making sure a buy/sell agreement is worth more than just the paper it’s printed on.
“It reminds me of the Seinfeld episode of taking your reservation,” said Jorge Ramos, senior estate planning consultant at The McClelland Financial Group at Assante Capital Management Ltd. “People are able to take your reservation but keeping your reservation is the most important part. The buy-sell agreement is just like a reservation. The insurance, that’s keeping the reservation. That ensures you will fulfill the buy sell agreement.”
Without a properly funded buy/sell agreement owners can be left in the difficult situation of trying to buy out their ex-partner’s spouse, usually at great cost.
“In the absence of insurance, where does the money come from?” said Ramos. “It comes from the business, which could cripple the business. It could cripple your personal net worth because then you have to take a loan out.”
And new data shows an alarming number of Canadian business owners don’t have a succession plan. A recent CIBC poll shows only 57 per cent of Canadian business owners who are within 10 years of retirement have business transition plans. More concerning, the vast majority at 80 per cent admit that their plans are informal.
“Too many business owners are taking a false sense of security from having a transition plan that is informal, which means they are taking chances with their business and their retirement income,” said Shelley Swanlund, head of small business at CIBC.
But insurance can help clients formalize their plans by figuring out a way to fund it.
“Insurance is critical,” said Ramos. “It’s easy to say my partner will buy me out, but that might not be practical if the cash isn’t available. Aside from insurance, the only other option is to actually put money aside to fund that liability. If you put money aside that’s money that’s not used in the business. Insurance is a fraction of the cost of funding it dollar for dollar.”
In CIBC’s online survey of 803 randomly selected Canadian business owners, only 14 per cent had created their plan with the help of professional advisors, while 6 per cent prepared a formal plan on their own. Perhaps more troubling, 40 per cent of business owners indicated that they had yet to identify a successor.
“The difficulty, without a doubt, is getting the business owners to work on his business and not just in his business,” said Nick Godfrey, owner of ProInsure. “Part of the problem with running a business is finding the time. I think they know they have a problem, it’s just getting them to take action like anything else, but that’s just kind of insurance in general.”
