1. BUSINESS OWNERS
AND THEIR ISSUES
Rick Machtinger B.B.A., M.B.A., C.F.P.
Director New Business Development
Desjardins Financial Security Independent Network
100 York Blvd, Suite 105
Richmond Hill, Ontario L4B 1J8
Phone: (905) 707-5795 ext. 226
Toll Free: 1-877-707-5795
Fax: (905) 707-8599
www.dfsin.ca/RickMachtinger

2. 2
Table of Contents
Personal Financial Security Issues 3
Business Financial Security Issues 3
Transition Planning Objectives 3
Business Loan Protection 4
Key Person Protection 4
Business Succession 4
Business Succession on Death 5
Business Succession on Death Continued 6
Business Succession on Critical Illness or Disabilty 7
Business Succession on Retirement 8
Buy-Sell Agreement 9
Estate Planning 10
Estate Equalization 10
Estate Conservation 10

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BUSINESS OWNERS AND THEIR ISSUES
PERSONAL FINANCIAL SECURITY ISSUES:
1. Retirement
2. Family income in the event of death and disability
3. Wealth accumulation
4. Health Care
5. Financial Effects of spouse dying
BUSINESS FINANCIAL SECURITY ISSUES:
1. Business continuation in the event of death or disability of the owner
2. Access to capital and credit
3. Capital gains tax
4. Key person loss
5. Smooth transfer to family heirs (in case of a family business)
6. Employee health and lost productivity
7. Employee retirement
TRANSITION PLANNING OBJECTIVES:
1. Provide for family-maintain family’s lifestyle
2. Maintain business value-Owner is the value, if no longer there, the business value
will drop if no provisions are made
3. Provide for succession-the business is the owner’s legacy
4. Maintain family harmony-children can be petty and greedy, estate equalization can
become an issue
5. Tax minimization-Manage the potentially large capital gains bill at death so assets
don’t have to be liquidated

4. 4
BUSINESS LOAN PROTECTION:
To ensure the business debts are repaid on the death, critical illness or
disability of the owner or key person
1. Will the loan be called?
2. Can the business survive?
3. The estate will have to repay the loan if the business can’t
KEY PERSON PROTECTION:
To provide funds to the business to offset the financial losses arising on the
death, critical illness or disability of those key persons
1. Creditors can call in their loans
2. Business could fail
3. Customers could leave
4. Business profits could drop
BUSINESS SUCCESSION:
A plan to ensure the smooth transfer of a business or interest in a business at
the time of death, critical illness, disability or retirement of the business owner
1. The greater the degree of dependence on the business owner, the greater the
chances that the business will have to be liquidated in case of death, disability
or retirement
2. In addition, if the business owner is close to retirement age and is counting on
the business for his retirement assets, the odds are increased that the business
will be sold
3. The idea is to reduce the dependency of the business on the business owner

5. 5
BUSINESS SUCCESSION ON DEATH:
Involves a plan to ensure the smooth transfer of the business interest at the time
of death of a business owner. A smooth transfer of the business will provide
financial security for the deceased’s family, maintain the value of the business
and maintain family harmony.
One Owner-Business will have to be liquidated, usually at a loss
Ø Debts will have to be repaid
Ø There may be insufficient funds available to generate an income for the
heirs
More than one owner and unrelated-Need for the surviving owners to buy
out that one owner’s heir
Ø What is the fair market value of the deceased owner’s share worth
Ø Who will run the business
More than one owner and related
Ø Who will run the business
Ø Need for estate equalization to maintain family harmony
Ø Will the business be able to support everyone
Business is liquidated
Ø Personal liabilities, bank loans and mortgages will have to be taken care of
Ø Probate fees and taxes will have to be looked after
Ø Adequate income will need to be provided to maintain family lifestyle
Ø Business value will likely decrease
Business is sold as a going concern
Ø Will there be sufficient income for the heirs
Ø Will the business’s line of credit still be available
Ø Will the new management be able to run the business
Business is retained in the family
Ø Estate equalization to the other members of the family who don’t get as
large or even piece of the pie
Ø Who will get the power or control as opposed to just shares (who will run
the business)

6. 6
BUSINESS SUCCESSION ON DEATH (CONTINUED):
Funding Alternatives:
Ø Cash on Hand
Ø Sinking fund
Ø Borrow from the bank
Ø Sell the business
Ø Insurance

7. 7
BUSINESS SUCCESSION ON CRITICAL ILLNESS OR DISABILITY:
Involves a plan to ensure the smooth transfer of the business interest at time of
critical illness or disability. A smooth transfer of the business will provide
financial security for the critically ill/disabled owner’s family, maintain the value
of the business and maintain family harmony
One Owner
Ø Probability of critical illness/disability is greater than death prior to age 65
Ø There is no one to back up the owner to run the business or provide for his
family
Ø The business may have to be liquidated at a substantial loss
Ø Personal assets may have to be liquidated
More than one owner
Ø Odds of critical illness/disability are greater than for a single owner
Ø Critically Ill/Disabled partners are legally required to share in profits
Ø How long can the company afford to pay the profits, as well as the
payment of a replacement
Ø Who will pick up the slack
Business is liquidated without a plan
Ø The values received under a forced liquidation are dramatically less than
the fair market value
Business is sold, as going concern
Ø Customers may be lost, creditors may demand payment, and goodwill
values can drop. As such, the business may be sold for less than fair
market value
Business is retained in the family
Ø Do they have the knowledge to run the business
Ø Who will assume power
Ø Will the business be able to support the owner and his replacement
Business Overhead
Ø If the owner is critically ill/disabled and is not there to run his business to
generate an income, how does the daily operating expenses get paid?

8. 8
BUSINESS SUCCESSION ON RETIREMENT:
Retirement planning involves obtaining the business owner’s goals for retirement,
assessing their current situation and determining whether there are any issues that
need to be resolved to meet the business owner’s goals. The business owner faces
the same issues as any other individual. The only difference is that a large portion
of their retirement assets is invested in their business.
The business is liquidated
Ø Are the business assets marketable
Ø What will the liquidation losses be on the sale of these assets
Ø What capital gain taxes will be payable
Ø Will the funds received be sufficient to provide the desired income
Ø Does the owner have other assets that can generate a retirement income
The business is sold as a going concern
Ø Can the business be sold
Ø Who will buy it
Ø What would the sale price be
Ø What are the taxes due on the sale
Ø Will the funds received provide the desired income
Ø What other assets does the owner have that can generate an income at retirement
The business is retained in the family
Ø Is there a family member who can run the business
Ø Will the business be able to support the owner and his successor
Ø Will the business be liquid enough to pay both

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BUY-SELL AGREEMENT:
An agreement between owners of a business stating exactly what they want to
happen to their business interests during their lifetime and at death. The
agreement acts as a ‘referee’ to protect each owner’s interests (and/or those of
their families) in the business.
Events to be addressed
Ø Restriction on the sale of an owner’s interest in the business to third
parties
Ø Dissention between the owners
Ø Retirement of an owner
Ø Bankruptcy or marital breakup of one of the owners
Ø Death or disability of one of the owners
Advantages to the deceased’s estate
Ø Guaranteed market for the sale of the business
Ø Fair price received and liquidity at time of death
Advantages to the surviving shareholders
Ø Guarantees the estate will sell the interest in the business
Ø Ownership remains with the surviving owners
Ø Minimizes potential disruption to the business
Funding Alternatives
Ø Personal Wealth (may trigger tax liabilities or be inadequate)
Ø Bank Financing (burdensome to the business)
Ø Purchase over time (family becomes a creditor and counts on owners to
run business successfully)
Ø Sinking fund (no way to determine if amount is sufficient, funding
could be inadequate)
Ø Insurance

10. 10
ESTATE PLANNING:
The ongoing process of creating and maintaining a program designed to preserve
an individual’s wealth and distribute it to the succeeding generations in a manner
consistent with the individual’s wishes. The objective of estate planning is to die
neatly and inexpensively
Benefits
Ø Manage current income taxes
Ø Manage and plan for taxes due upon death
Ø Manage income taxes after death
Ø Minimize government interference
Ø Minimize disputes
Ø Provide peace of mind
ESTATE EQUALIZATION:
Involves planning for the distribution of assets on death to heirs in an equitable
manner
Issues
Ø Are all children capable of running the business
Ø Who should run it
Ø How should non-participating children be compensated
Ø Should non-business assets be directed to those who are non-active and
the business go to those who are
ESTATE CONSERVATION:
Maximizes the value of an individual’s estate to his/her heirs after his/her death.
The main issue is keeping the estate intact
Planning
Ø Establish Trusts
Ø Gifting
Ø Estate Freezes
Ø Wills
Ø Insurance