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Special Reports

 

Have you just hired the future owner of your business?

Consider upgrading talent and making acquisitions now, urges RBC report

TORONTO, September 15, 2009 — Businesses can take advantage of market conditions to upgrade their talent - and for many business owners, the new employees they recruit will become key to their succession planning. An RBC white paper released today urges business owners to think about future leadership in their recruiting and to consider acquisitions while valuations are still low.

"There is an upside to the current employment market, both for business owners and prospective employees," said Anthony Maiorino, vice-president, High-Net-Worth Strategies & Services, RBC Wealth Management. "A large number of business owners will soon want to retire and a higher-than-usual number of talented employees are looking for work. This offers an unprecedented opportunity for business owners to recruit top talent who can potentially take over their business and enable them to retire. This could also be a great opportunity for people who would like to have an ownership stake in a business in five to 10 years."

One in four small and medium-sized business owners over the age of 50 plans to exit their business within the next five years, according to an RBC study. However, 77 per cent of owners have made little or no progress putting a succession plan in place.

Increasing the internal talent pool not only gives a business owner the option to sell a part or all of the company to employees and management, but it can also increase the valuation of the business if it is sold to a third party.

The RBC white paper, titled "From downturn to upside: New thinking on business succession for today's economy" also has a contrarian tip for business owners thinking about selling: Consider acquisitions. Valuations are lower now than they were a few years ago, which means some business owners are delaying their plans to sell. But well-positioned businesses should consider taking advantage of lower valuations to make strategic acquisitions at affordable prices. This could provide a business owner with good value, fuel growth and attract an even higher valuation when the economy recovers.

"Strategic acquisitions can position you to be first out of the gate when the economy fully recovers," said Nadia Ceciliot, national manager, Commercial Financial Services, RBC Royal Bank. "You still need to use a disciplined approach and perform thorough due diligence, but you could find your options are more affordable now than they have been in a while - and that might not last much longer."

Five Tips for Business Owners Who are Preparing to Retire:

  1. Take advantage of the downturn to upgrade your talent. A stronger and deeper talent pool makes the business more attractive to buyers and may also present the option of selling all or a portion of the company to employees or management.

  2. Consider acquisitions. Take advantage of lower valuations in the current market to fuel growth and make your business more valuable down the road.

  3. Examine your exit options. Normally the main options include passing the business to family, selling to a partner or group of employees, or selling to a third-party buyer. Building a successful succession plan requires professional advice and the execution can take from three to five years. Evaluating options well in advance can help reduce the risk of unpleasant surprises.

  4. Start tax planning early. Whether you are selling the business or passing it on to your children, there can be a significant tax bill. Strategies to reduce taxes and in some cases achieve income splitting could include an estate freeze, the use of a holding company or a family trust, an individual pension plan (IPP), a retirement compensation arrangement (RCA) and life insurance. Some of these strategies need to be in place several years before a sale or ownership transfer to ensure the maximum tax savings.

  5. Involve your family. Find out if your children or their spouses have any interest in working in your business. If they aren't involved but want to be, this could be a good time to bring them in. If they don't want to be involved as employees, you will need to consider other exit options.

These strategies should be reviewed with a team of advisors who have experience dealing with business succession issues, including a financial advisor, tax advisor and lawyer. For more information on these strategies and other ideas, the RBC white paper is available at www.rbcwealthmanagement.com/whitepaper.

RBC provides specialized financial advice to businesses and business owners, including succession planning, business financing advice, raising acquisition capital, wealth management, tax planning, personal retirement, philanthropy, insurance and estate planning. Business owners can contact their RBC commercial account manager or their RBC financial advisor for more information. For more information on succession planning, visit www.rbcroyalbank.com/succession.

About RBC Wealth Management
RBC Wealth Management directly serves affluent and high-net-worth clients in Canada, the United States, Latin America, Europe and Asia with a full suite of investment, trust and other wealth management solutions. The business also provides asset management products and services directly and through RBC and third-party distributors to institutional and individual clients, and has more than $490 billion of assets under administration, nearly $240 billion of assets under management and more than 4,500 financial consultants, advisors, private bankers and trust officers.

About RBC Business Financial Services
RBC Business Financial Services offers a wide range of lending, leasing, deposit, investment, foreign exchange, cash management and trade products and services to small and medium-sized businesses and commercial clients across Canada. RBC's extensive business banking network includes approximately 99 business banking centres and 1193 branches across the country.

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For more information, please contact:
Tanis Robinson, RBC Corporate Communications, (416) 974-1031
Matthew Gierasimczuk, RBC Media Relations, (416) 974-2124

 



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09/15/2009 09:49:39