Considerations for Today... That Maximize Your Wealth Tomorrow

CONSIDERATIONS FOR TODAY . . . That Maximize Your Wealth Tomorrow

By James Byrne, CPA, CA

Although quotes may seem a bit cliché, there’s a classic Yogi Berra quote that I often use when talking to clients as it fits so many situations and businesses: “If you don’t know where you are going, you might not get there”. This is a great quote to remember because no matter what stage of development your business is at, you need to be considering what you are looking to achieve, otherwise it may never happen.

What is your objective and what are you looking to accomplish?

The simple answer I hear often is “make money”. This is too “simple” of an answer though, and as a business owner you really do need to look deeper than that. To start, how much money do you want to make? As much as possible? Or as much as possible while allowing you to spend six months in Maui every year? These may appear as very similar statements, but how your business is organized is very different based on the specific objective; workforce makeup, customer expectations and cash-flow needs to name a few. Various other questions to ask yourself;

• Do you want to run out of one location, or have multiple operations?
• Do you want to expand operations or are you comfortable with the size and scope of your business today?
• Do you want to be known as having the best equipment?
• Do you want to transition your business to the next generation or take it all to the auction?
• Do you know how much money you need to retire?

What are the right things to consider?

While it is true that most business objectives will boil down to the fact that we all want to make money in our business and accumulate wealth and equity, we will all do things a bit different due to our unique circumstances and goals. Regardless of how or what we do to accumulate wealth in our business, what we really need to appreciate is that money is a trailing indicator of doing the right things.

Making money today is the result of having already considered and done a number of things correctly in your business. To take it to the next level, retaining and accumulating significant wealth in your business is the result of continually doing the right things in a number of different stages and areas of your business.

The “right things” will change and vary depending on the stage of your business and which area of your business you are looking at. The key to identifying what the right things are, though, is ensuring the decisions you make in your business align with your business objectives and overall goals.

Where is your business at?

Every business goes through a series of stages in its evolution. Failure to plan properly at any stage of your business lifecycle may result in significant financial consequences or lost opportunities down the road. The first step to effective planning is to understand what stage your business is at today.

Start Up: Most new business owners don’t want to incur heavy costs until they’ve proven the business potential, so you may select a simple structure such as a proprietorship or partnership. Business focus is on establishing basic processes for finances and people.

Growth: At this point, you’ve proven your business concept and concluded, “Yes, I can make money doing this”. As your sales and revenues continue to grow, operational and people needs grow more complicated.

Financial needs become larger and needs become greater. Expansion puts pressure on all areas of your business.

Maturity: Now you’re really making money. With steady cash flow and a healthy bottom line, you can start looking expansion, acquisitions, or new ventures. As your business matures, consideration should be given to protecting equity and ensuring that the corporate structure in place will provide the optional tax advantages for expansion/growth/disbursing wealth and even potential sales of business units.

Exit: Finally, you need to determine how to exit your business. Many tax restructuring transactions must be completed several years before a sale or succession process begins, so you need to start preparing long before you plan to actually exit. This will ensure maximum flexibility for estate planning, income tax minimization and capital gains considerations.

EXIT / SUCCESSION

How do you know if you’ve done things right?

How to know if you’ve done things right is quite simple: You have an effective plan and have executed that plan accordingly. Specific steps generate expected outcomes based on foresight and consideration of how actions and events will unfold. Having a good plan in place will provide you with predictable outcomes and most importantly cash in your pockets. If you haven’t planned, you don’t really know what the outcome will look like and are waiting to find out. However, do you really want to wait to find out if you’ve done things right and have left thousands of dollars on the table or with the tax man? Don’t wait to find out if you’ve done it right!

James Byrne, CPA, CA is the Regional Leader, Forestry & Forest Products with MNP’s Forestry Service Team. To learn more about what MNP can do for you, contact James at 250.338.5464 or [email protected]

This article was initially published in the Winter 2015 issue of Truck Logger BC Magazine