Our latest guest on the Ask a Vexxpert podcast series has made a name for herself helping businesses navigate long term plans. Anita Janzen-Gemmell is a partner at BDO and she’s been excelling in the corporate community for more than 15 years in business succession planning, with a specialty in tax and accounting. In this episode, we cover key considerations when long term planning for your business.
With clients in a broad range of industries throughout the pandemic, Anita has seen revenues go up for some and halt for others. Overall, its put a huge emphasis on her clients’ cash flow. When we speak to personal finance managers, or watch Instagram influencers talk finance, there’s often talk about an emergency cash fund. Anita shared with us that the same principle should apply to corporations and businesses too.
It's not uncommon for people to delay creating a fund like this, but COVID has certainly shown a clear example of an unforeseen circumstance where you may need cash to save your business. It inspired many to rethink their business’ future financial plans. As we all know, no one was ever expecting this.
So, if you’ve decided it's time to have a contingency fund, is there a rule of thumb that people can follow to decide how much should be in it? For personal finance, your emergency fund should have enough to cover three months of expenses. For businesses, it depends on a number of things. The size of your business. The type of industry you’re in. There’s no one size fits all. It really comes down to who the owner is and how comfortable they are leaning on their bank in hard times or what they feel comfortable having in their bank in the event of an emergency. One of the real gifts this fund gives is a buffer of time where you can make plans to bring your cash flow back up.
Let’s say your business is doing well through COVID. Is this the time to acquire a competitor, or is it the right time to sell? These are Anita’s favourite type of questions: the ones that are unique and help entrepreneurs that are in need of advice. For such a big decision, she recommends going to your advisory panel to talk you through these decisions. Whether it's an accountant, lawyer, financial advisor or consultant, they can help you with the next steps and ensure it's all working in the best interest for you, your employees and other stakeholders.
Anita also notes, it's wise to look at all the things that aren’t related to numbers when choosing to acquire or sell.
Do you have enough time? Is this the right time? Is this something you can commit to and do a great job at like you’re doing in your current business? All of those things have to make sense before you move forward. Anita notes, “I think business owners need people to ask those questions of and to me if the fun part of being an accountant, if you can imagine that there is a fun part.” In this episode, they dive into another one of Anita’s specialties: business succession planning. When making your long-term plans as a business owner, thinking about who will take over for you when the time comes is something better done sooner than later.
Anita is from Portage la Prairie in rural Manitoba and works with a lot of agricultural businesses. She states that, on overage, she starts talking to her clients about their succession plan about 10 years before they are going to pass the business on. Asking questions about succession planning early on plants the seeds for a smooth future transition. As far as business co-owners go, there are an endless number of scenarios from two siblings to husband and wife to non-related shareholders. Oftentimes, the piece that is missing is the communication. One person thinks they’re selling and going to get it done within a year. The next person wants to work for another 15 years. It’s extremely valuable to have that conversation early on.
Here are some helpful questions to ask:
Do you want to ultimately sell, and if so, when?
Do you want to transfer the business to a family member?
If you decide to pass it on to a family member, have you asked them if they want to take it over?
Asking these hard questions can be a huge benefit to clarifying your goals.
The episode sheds more light on goal setting and presents some wonderfully shocking stats. According to Dave Kohl, Professor Emeritus at Virginia Tech, people who write down goals are 33% more likely to achieve them. Another number from this study: people who regularly write down their goals earn nine times as much over their lifetimes as people who don't.
Further to goal setting, Anita cites a shareholder agreement as one of the tools that she thinks every business with multiple owners should have. And it's more than just creating it. She recommends looking at that plan at least every five years or at every major life event that may shift plans like a death in the family or a divorce.
When all is going well in a business, people have the tendency to think, “Why should we spend time and money making this?” To Anita, it's about investing in the health of the business. If you talk about these things upfront when everything is going well, and everyone is getting along, it's going to be a better investment than ten years later when something goes sideways and not everyone is getting along.
We spent time talking about the many difficulties COVID presents, but Anita notes that it's important to survey the toughest of situations for silver linings. Her BDO team was discussing how to do things differently and illuminated a mantra that rings true: challenges bring new inventions.
To wrap the episode, Anita shares her top three takeaways:
For professionals just starting out, don’t be afraid to ask questions. Don’t be afraid to ask how or why things are in place. You have the ability to bring a fresh perspective to your team. It's also great to ask questions about your role to ensure you understand the expectations of your position.
Be financially literate.
If you're not, get your financial mentor to help you understand your finances, financial statements, and have a good working relationship with your advisor. The time you invest now will pay dividends in the long run.
If you’re in business with families or other shareholders - have an agreement.
No one has ever been sorry they had an agreement, but they are many stories of those wishing they had. Long term planning is one of the best ways to set you and your business partners up for success.