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holistic planning
Covid repercussions
Sloan Levett: Covid-19 has put a significant wrench in Wilson’s business, and perhaps his ability to sell it at max- imum value. Natalia needs to consider what this means in terms of her wanting to retire. For many people in this life stage, Covid may delay their ability to retire, or they may need to reassess what type of retirement they would like. Farzin Remtulla: But I don’t think the pandemic neces- sarily derails those plans. For Natalia, the question is a financial one: Are her savings and expected income suf- ficient for her to retire? She’s off to a good start because she has a defined benefit plan that pays 80% of her sal- ary. My suggestion is to consider her source of income
in retirement and her net asset position, and weigh that against her estimated expenditures and the liquidity needs of her estate.
For small businesses like Wilson’s, cash is key. He must focus on having enough cash to meet his operat- ing costs. He’s already accessed the wage subsidy. The Canadian Emergency Business Account is another great program. It provides an interest-free loan up to $40,000; 25% of the loan is forgivable so long as you pay it back before Dec. 31, 2022.
Small Batch could access this program so long as payroll was no more than $1.5 million in 2019. Wilson can use the borrowed funds for what the federal government refers to as “non-deferrable expenses,” which include wages, rent payments [and] insurance costs. I suggest maintaining a spreadsheet of how the funds are being
deployed in case of an audit.
SL: There’s also the EDC Business Credit Availability Program, a working capital loan program through Export Development Canada, and the Small and Medium-sized Enterprise Loan and Guarantee Program through the Business Development Bank of Canada (BDC). In order to qualify, business owners must have previously been profitable and demonstrate how their business has been negatively impacted by Covid-19. Wilson’s existing bank would underwrite the loan and usually the bank would take 20% of the loan, and the BDC would take 80%.
Sell now, or wait?
SL: Anyone buying now is looking for a discount because of post-Covid uncertainty. Does Wilson have the strength, ability and time to rebuild? Or does he want to exit the business while he can and preserve some value? FR: Wilson doesn’t have a successor in his family, so he needs to sell at some point. Now is the time to dissect his business and determine where the value is.
Businesses like Wilson’s are generally valued using an income approach, meaning they’re sold as some multiple of the company’s normalized earnings. The challenge in valuing his business in this climate is there’s uncertainty around when his company’s earnings will return to nor- mal, and what that normal looks like.
He needs to figure out how much of the value of his business is corporate value versus personal and goodwill. If Wilson is getting all the contracts and holding the key relationships, that tells me a lot of the value is in Wilson’s personal goodwill. If he wants to get the most out of
his business when it’s time to sell, my suggestion is to formulate a plan to introduce a senior manager to his net- work, and start transferring over key relationships soon — but also cultivate new ones virtually.
Bruce Ball: It’s important he’s still seen as being part
of the business, as well. Covid is unprecedented in a lot of ways. If Wilson is not involved in the business much longer, [that could be seen as another] uncertainty. So he should remain a driving force in the business and get it through the pandemic.
SL: Some questions need further fleshing out: Can the underlying business recover to that $10-million revenue mark? What would it take to get back? And is [Wilson] willing to risk waiting and never getting back, versus look- ing for a buyer today? It all goes back to their retirement goals and capital needs.
FR: One thing Wilson can do is go back to what he was doing in Argentina: networking and rebuilding relation- ships. Those are going to drive up the value of his com- pany’s earnings.
Tax planning
BB: From a tax perspective, one thing to consider would be having Natalia as a shareholder because there is a
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