Go out on top
In our retirement and succession planning guide, five entrepreneurs share their strategies for exiting the business and setting themselves up for life after work
Will Cadell isn’t the kind of person who was born thinking he would start a business of his own. But when Cadell was 32, he gave up paid employment doing mapping for the forest industry to become a freelancer providing the same kinds of services to multiple clients. Seven years later, he has a thriving web-mapping company in Prince George called Sparkgeo, 20 employees across the country and a constantly evolving strategy for where he wants to go with his team and his business.
And even though it’s a long way away and may never fully arrive for a “fidgety” person like him, Cadell, a Scotsman who moved to Canada after finishing university, also has a plan for retirement. Some of it is standard Canadian, like putting money into RRSPS. But for Cadell, it also means developing a business that no longer requires his presence. So he’s constantly hunting for products his company can create that will live on their own.
He has one already, Maptiks, a market-intelligence tool that allows businesses to track what their customers are looking at as those customers interact with an online map that, for instance, shows real estate for sale. Cadell and his staff are trying to create more, while continuing to do the kind of individualized consulting he started his business with.
“The nature of consulting is that it’s personality-driven,” he says, pondering his life and business strategy aloud as he takes a short break from a ski vacation with his wife and three daughters at Lake Louise. “One of the reasons for creating a product is to have something that doesn’t need us.”
As it turns out, Cadell, without relying on the services of a business coach, lawyer or investment manager to come up with that approach, is doing exactly what those experts say small-business owners should do.
“Most entrepreneurs work their tail off just to buy themselves a job,” says Ian Burroughs, a lawyer whose Vancouver-based firm specializes in small-business management and succession planning. “Often what happens, you have an individual who is a go-getter. They start a business, and it’s a success. For 20 or 30 years, it’s their baby.”
The problem: “They neglect to think ahead to ‘Why am I running this?’ They get stuck in operational mode,” Burroughs observes. “But the purpose of having a business is to sell it.”
Business owners need to do some of the same things that any adult in Canada would to prepare for the future. Spend less than they make. Put money away in both specialized retirement and non-retirement investment accounts. Calculate what pensions they will get from government or a private company, if any. Understand what their current living expenses are and calculate what their future ones might be for the years left to them on the actuarial tables.
But their retirements—if and when they arrive at that point, with business owners being congenitally more inclined to keep working past 65—are complicated by other factors. They need to plan to sell or transition out of their business, and when they do it, they need a tax strategy to maximize the profit they get to keep. But well before that, they need a tax strategy from year to year that gives them the most for the long term. They also need to truly understand what their living expenses are.
That’s one of the warnings that Michael Preto hands out to his clients, along with the basic need to make the business sellable from the start: figure out how much income you’ll need to replace, especially considering that you’ve probably mixed your personal and business expenses together for decades.
“Business owners have more work to do than the general public to replace their income,” says Preto, a Vancouver-based investment adviser at Holliswealth, a division of Industrial Alliance Securities Inc. “Government pensions are the same whether someone made $50,000 a year or $500,000. So they’ll have to replace a lot more income. And it’s harder for them to understand what income they’re replacing, because they have their personal and business expenses all muddled up.”
Cadell understands that, too. Careful to separate the two kinds of expenses, he’s set up a system to pay
himself a salary and issue himself a T4 every year. “It costs more… but it’s worth it,” says Cadell, who jokes that his business brings in “between $1 million and $4 million a year” in gross revenue. It helps him ensure that any future buyer of Sparkgeo understands what the true costs are, including the founder’s wages.
Looking for an exit
Hundreds of kilometres to the south, Bill Broddy is making similar moves, having learned some lessons from navigating two previous businesses and one retirement already. In his earlier life in Ontario, Broddy, 64, a former IBM Corp. employee, had run high-tech businesses, but they were primarily consulting and services companies—the kind that, as Will Cadell knows, are difficult