Monday, July 28, 2014

6 Ways to Profit From Your Vacation

Summer may be the perfect time to increase the value of your company.  The most valuable businesses are the ones that can survive without their owner.  A buyer will pay a premium for a company that can operate effectively without the owner’s presence and likely require a steep discount for a business that is dependent on its owner. 

This summer, consider taking an extended break from your business to see how things will run when you are not around.  It is likely that some things will go wrong, but use those errors as feedback for making your business operate more independently of you, and therefore more valuable.  

Here is a six-step plan for profiting from your vacation time this summer:

Step 1: Schedule your vacation plus one day

Whatever day you plan to start working again after your holiday, tell your staff you’ll be back one day later.  That way, you’ll have a full day of uninterrupted time to dedicate to understanding what went wrong in your absence.

Step 2: Log the mistakes

When you return, make a summary of the things that went wrong and categorize them into one of three buckets:
  • Mistakes: errors where there is a right and wrong answer;
  • Bottlenecks: projects that had difficulties because you weren’t there to provide your feedback;
  • Stalled projects: initiatives that went nowhere while you were gone because you’re the person leading them.

Step 3: Correct the mistakes

The first and easiest place to start is to simply correct the mistakes that were made.  Usually mistakes are due to a lack of training rather than outright negligence.  The right answer may be crystal clear in your head but not immediately obvious to your staff.  Write up some instructions for next time the employees face the same situation.  Make sure your instructions are clear, and share them with your team so everyone has them.

Step 4: Unblock your bottlenecks

If you are being asked for your personal input on projects, there’s probably going to be a bottleneck if you are not around.  Make sure your staff is clear on the projects where you need to have a say and the projects where you don’t.  Some employees may wrongly think that you need to approve all decisions.  Make it clear when you want them to act alone and when you still need to be involved.

Step 5:  Re-assign stalled projects

The hardest part of making your business less dependent on you is dealing with projects that get stalled when you are away.  Start by asking yourself if you are the right person to lead the project in the first place.  As the owner of your business, projects often fall in your lap by default, rather than because you are the best person to lead them.  Categorize your stalled projects into two groups: a) strategic projects that you need to lead; and b) non-strategic projects you are leading by default.  Hang on to the strategic projects, but delegate the non-strategic projects to someone on your team who is better suited to drive them forward. 

Step 6: Give your employees authorization

At Ritz Carlton Hotels, every employee has discretion to spend up to $2,000 on a guest, without approval from their general manager.  The $2,000 figure is a large enough number to make the message clear: front line employees should act first, make the customer happy, and ask questions later.  Many employees know how to make a customer happy but lack the confidence to act.  Giving employees some spending authority will speed up the resolution of customer issues and empower your team to do the right thing when you’re not there. 

The sunshine is beckoning, so go ahead and take a vacation – if you follow the six steps here, you may end up with a tan and a more valuable company. 

Sunday, July 13, 2014

Estate Executors – How to Increase Your Protection and Minimize Your Risk

The executor of an estate with business interests should obtain an independent professional business valuation as support for the values used in the estate administration tax (“EAT”) filing, particularly in light of recent changes to EAT legislation and the potential for personal executor liability.

At the time of probating the will, EAT (previously known as “probate fees”) of 0.5% must be paid on the first $50,000 of estate assets and 1.5% on the value of the remaining assets. [1]  The estate representative (i.e. executor or trustee) has many responsibilities, including:
  1. Filing an affidavit as to the estimated value of the estate; 
  2. Remitting the EAT on the estimated value; and 
  3. Providing an undertaking to file, within six months, a sworn statement of the total value of the estate, and to pay the balance of any additional tax owing (if any).

In 2011, the Ontario government amended the legislation to enhance the EAT compliance regime.  Beginning January 1, 2013, the Ontario Minister of Revenue will be afforded significant audit and verification functions including the right to conduct a review of the estate inventory and valuation provided by the executor.  If a greater estate value is determined, additional taxes can be assessed.  As a result, there will be much more pressure to verify the value of the assets disclosed in the EAT filing.

Penalties have been added to encourage compliance.  It will be an offence for an estate trustee to fail to make the required filing with the Minister of Revenue.  It will also be an offence for any person who makes, or assists in making, a false or misleading statement in connection with the estate trustee’s filing.  Offences are punishable by fine, by imprisonment or both.  The minimum fine will be $1,000.  The maximum fine will be twice the EAT payable.

An estate representative may be exposed to personal liability if the estate assets have been distributed before the Minister of Revenue issues a notice of assessment.  There is no ability to obtain a “clearance certificate” to protect the estate representative from personal liability.

In light of the responsibilities of the estate representative, the new audit measures, and the potential for personal liability, it will be critical for executors to be diligent in obtaining and documenting proper and accurate valuations of the deceased’s property for purposes of calculating the EAT.  Where the estate holds shares in privately held businesses, the benefits of obtaining an independent business valuation will far outweigh the costs to the estate and the risk to the executor of not having one prepared.

Contact us at or for an independent business valuation if you want to minimize your risk and increase your protection as an estate executor.

[1]  source:

Thursday, July 03, 2014

Business Valuations to Support Life Insurance Coverage

We were recently contacted by the Inspection Department of an independent service provider to the Canadian life and health insurance industry with respect to one of our clients.  They were gathering information to assist in the underwriting process and wanted independent evidence supporting the client’s claim as to the value of the business as part of their inspection process.  Our client asked us to provide a copy of the independent business valuation we had prepared for purposes of their estate planning and life insurance.  

We have been providing independent business valuations to help business owners determine an appropriate amount of coverage for many years.  This was the first time, however, that we were contacted by a representative of the insurance company.  It may be that independent business valuations are becoming a more formal part of the underwriting process.

Life insurance is often used for income replacement or to alleviate the burden of estate and probate taxes upon death.  However, when business owners use life insurance to fund a buyout or redemption of the shares of a deceased shareholder it is important to ensure that the death benefit will be adequate to:
  1. Fund the buyout or redemption of the deceased shareholder’s shares (Buy/Sell Insurance); and
  2. Ensure the continued survival of the business upon the loss of what may be a key person in the business (Key Person Insurance).

As a result, the life insurance coverage should at least cover the current value of the business and many business owners grossly overestimate or underestimate the value of their business.  An independent business valuation provides business owners with third party evidence for ensuring adequate life insurance coverage.  This in turn provides the shareholders with peace of mind that their families and their businesses are sufficiently protected.  

An independent business valuation is also helpful to the insurance advisor as it will help:
  1. Manage and control the process in creating the application file - insurance companies and their risk advisors are increasingly requiring support for the amount of coverage requested; and
  2. Solidify trust and cultivate the relationship with the client - providing the insured with third party evidence regarding the value of their business eliminates any pre-conceived notions the client may have with respect to being over sold or under estimated as far as coverage.  

The business valuation should also be updated periodically as the adequacy of the life insurance coverage should be reviewed in light of any growth or other changes to the business over the prior years.  Ideally, this process should be agreed to and formalized in the company’s shareholders agreement, which for many business owners, may not exist or may not have been updated for many years.

Life insurance is an integral part of estate and contingency planning for business owners.  If you are in the process of obtaining life insurance or reviewing your current coverage, contact us at or to assist with your business valuation needs.