Most family businesses are corporations but they are more institutions than businesses. The owners expect loyalty to the organization (ie them) and there appears to be a higher calling than the profit motive.

I have been around them most of my business career. They may have some or all of the following characteristics:

  1. Very tight ownership control – 100% owned by 1-3 family members
  2. Poor internal controls – no budgets or forecasts
  3. Longevity – many are second generation or longer
  4. Their market is local so this does explain #3.
  5. Not well capitalized.
  6. The business net worth of the shareholders isn’t available.
  7. The sole source of remuneration is a salary.
  8. There isn’t much if any consideration to succession planning.

All of the above might appear to be pejorative on my part. It isn’t a criticism but a statement of fact – after over 30 years experience in this sector.  Like any business, the family business faces daily challenges. There is an extra strategic challenge that the family business faces. How does the business enable wealth transfer from generation-to-generation yet ensure the replenishment of the family ownership ranks?

The above isn’t easy. This unique challenge is facing the baby boomers right now. The boomer who is an employee may be able to retire with a pension, convert their RRSP to a RIF or have outside sources of (investment) income to supplement their retirement years. Maybe!

The boomer(s) who own businesses have their retirement wealth invested in their business. Their business is their RRSP.  That is obvious. What is the solution?

I feel that one of the greatest challenges facing the boomer business owner (BBO) over the next 10-15 years is – devising their exit strategy. This is one of the most difficult decisions the BBO will ever make.

Have you given any though to your BBO exit strategy?



The first step is easy.

Posted: September 12, 2013 in Business startup

It would appear that the important first step in entrepreneurship – deciding to start your own business – isn’t that big a deal.  I’ve taught several classes to individuals who paid to attend and I am not certain whether they actually started their own business.

The first step is easy. If you decide that you want to start your own business that’s the easy part. Following through isn’t. We all have distractions and even.. sober second thoughts.

I have come to the conclusion that most small business ideas are work-from-home part-time businesses. That isn’t easy either but this is less risky than Plan A.

So, you have decided to start your own business? Before you go about preparing a business plan, here are some basic questions you need to answer:

  1. Do you have a name for your business? This isn’t as easy as it seems. You may have chosen a name only to find out later on that someone else uses it and has registered the name. Can you find out if this name isn’t taken?
  2. How will you operate? A proprietorship or a corporation?
  3. Will you work from home or rent an external office?
  4. How is the local (micro) economy in your immediate market? While there is never a wrong time (or best time for that matter) to start a business, the conditions of the local economy must be analyzed. If you plan to start a contracting business in a town with no growth, well — be careful.
  5. What is the state of your personal finances? Most small businesses are under-capitalized. The slow-to-arrive revenue must be financed somehow. Usually by your own resources. How good are they? If they aren’t good, be very cautious about starting an energetic business venture.

Okay, if you have all of those bases covered, the hard stuff begins….. preparing a 3-5 year business plan.

So, you weren’t scared of the low probability of success of start up businesses and you are still in the game? Okay,  the next step is to do the following:

  • Clearly articulate in 250 words or less the type of business you want to start.
  • What type of business will it be? Retail? manufacturing? Service?
  • Why is this business a good idea?
  • How do your qualifications dovetail with the business idea?
  • You should prepare a 1 to 2 paragraph “business bio” on yourself. This is not a resume but one of the foundations of your planning process. You may not have had the direct experience in this type of business as an employee but you may have had managerial or supervisory experience, marketing or finance experience and have had exposure to budgets and forecasts.

That is enough to keep you busy for a while. Here is a very good exercise that may curb your enthusiasm for a new business venture or possibly give you pause to do more in-depth research on your business idea. Each of the first four bullets above should have the words so what? added after.  This should give you time to reflect on your possible venture.

For example, you might say: “I plan to open a small business accounting business.” Okay, … so what? This will force you to add some features that will make your new venture stick out. You might add that the prices charged clients will be less than local full service bookkeeping businesses and certainly less than the rates offered by public accounting practices. You can add that your business will focus its marketing activities on businesses from 1-10 employees. This adds a massive market to your potential client list.

The next so what should deal with why the business will be attractive to possible clients.  The next so what might cover your academic credentials and prior experience in both private enterprise and public accounting. I think you see my point here.

By answering the so what questions you are narrowing your focus and concentrating on the key questions that possible clients would want to have answered.

Try it with your business idea. If there are more questions unanswered this isn’t bad. You need to do more research before you open your doors to a market that you might not have understood beforehand.


I have seen this sticker on many  semi-trailors on major highways: Don’t drive like you own the road, drive like you own the company. It is an important seguay into this (first in a series) of my blogs on entrepreneurship.

First, the sombre facts: over 50% of all start-ups fail in the first five years of operation. The reason – management! Now that this is out of the way, we can proceed to other realities that you must come to terms with:

  • Being an entrepreneur is different from being an employee. You can go through the motions as an employee and still pick up a paycheque every two weeks. As a self employed entrepreneur (in a proprietorship) your income is based on your ability to find enough revenue to cover your expenses and then hopefully have enough left over to cover your personal living costs.
  • You must never stop looking for business opportunities. You many be fully occupied with existing clients/customers but must always be on the lookout for new customers.
  • You must take a long term view despite the factoid #1.

You should do a personal assessment.

  1. Why do you want to go into business for yourself?
  2. What personality type are you?
  3. Can you handle stress? (Business will be stressful at times).
  4. Do you have a family? If so, they should be consulted with and advised about your plans. Do not come home on a Friday evening and announce to your spouse that “I’ve quit my job and decided to start my own business.”
  5. Are you aware of the constraints this can impose on your personal life?

Business owners work long hours but some people look at them and are jealous that they can come and go as they please or drive a flashy car. They think the entrepreneur has it all. Not true! Many entrepreneurs I consult to work 50-60 hours per week, open and close their doors each day and their flashy car may be the only perq they have.

So put the horse before the cart. Do a serious evaluation of your personality type and why you want to go into business – even before you go into business. You will have a leg up on other would be entrepreneurs.

More posts on this topic will follow.


Federal Reserve Chairman Ben Bernanke announced recently that the printing of money will start to decline. The Federal Reserve has been buying up to $90B per month of Treasury Notes. This has been the policy of monetizing massive US deficits. Interest rates in OECD countries are at legislated rock bottom rates. Inflation is about 2% per year and, by some accounts, the US economy is growing.

Don Drummond, a respected economist, told everyone that economic growth in the developed countries would be between 2-3% for the foreseeable future. So it will be difficult for Canada to grow into its debt.  Our Minister of Finance likes to point out that our federal debt to GDP is the lowest in the developed world.  Maybe, but he conveniently forgets to mention the provincial debt burden. The world’s largest debt rating agencies haven’t overlooked this. Canada’s GDP is $1.5 trillion. Our combined federal and provincial debt is about $1.1 trillion. This makes our total debt to GDP about 73%. We aren’t as good as we boast.

Ironically, large publicly traded companies have clean balance sheets. They used to consider OPM (other people’s money) as leverage. At the end of the day, it is debt. It has to be repaid and the debt service costs are subject to “prime plus ?” interest rate swings.

There was a study published by a economic think tank that an inflation rate of 4-6% would not be unwelcome. It would encourage governments to be more responsible. Yeah right!  Look at the possible impact on the consumer in general. Mortgage rate increases would make servicing of existing mortgages ($350,000+) unsupportable, not to mention the servicing of other personal loans.

Small business is always in a precarious position when it comes to the availability of bank credit. Banks would tighten up their credit policies and new loan growth in the small business sector would be very specious.



I want to start a small business mentorship group for Ottawa and area small business owners who have their own business and want to meet with their peers and discuss business ideas and have positive/non-judgemental feedback on ideas. The ideal business profile would be a business with 1-10 employees.

The size of the group would be limited to the number who could sit in a coffee shop or even around a dining room table. The venue isn’t as important as the people who attend and the topics on the agenda.

The discussions would be confidential and the attendees would have the opportunity to seek peer advice from people who have “been there and done that.”

We can discuss the following:

  • Financial issues
  • Financing issues
  • Marketing ideas
  • Management and personnel issues
  • IT issues

The onus is on everyone helping each other. No cost to join and no one is trying to sell anyone anything.


We all know about the standard (non-medical) definition of insanity: “.. doing the same thing over and over again and.. expecting a different result.” It seems logical to take this one step further: ” It didn’t work before, (and the time before )so, why do you think it will work now?”

Amazing as it may seem, this happens all the time. Here are a few business moves that I have seen business owners make in the face of contrarian results:

  1. Chasing revenue to cover bloated overhead.
  2. Using the same sales channels to chase non-existant revenue.
  3. Hiring salaried staff when hourly staff would be a better fit.
  4. Using revenue as the sole metric to evaluate business performance.

There are many others but, these are actions (reactions?) to a business that has problems and one in which management feels that more revenue alone will fix.  Small business management needs to have a clear understanding of their business model and regularly evaluate whether the business model works.  If the business is losing (accounting) income over a protracted period, the model is not working.

There is information that accountants must provide small business owners:

  1. Comparative metrics for both revenue and gross profit margins.
  2. Comparative metrics for (revenue) breakeven points.
  3. Fixed cash burn rate.
  4. Forecasts for profit and loss and cash flow.

Easier said than done unfortunately.



The formula is simple: Know your client + know how to make money = add to your net worth! It seems so simple doesn’t it? The businesses that make money on a year-over-year basis should have an amendment to this simple formula: monetizing your net worth.  This is the hard part.

I had a small business owner lament to me that: “I’ve invested about a hundred thousand dollars into this business and all I’ve done is bought myself a job.” How true!

Small business corporation shareholders receive a salary (and a T4 at year end) but I have seen only a couple receive T5s (investment income – specifically dividends).  Why not? Given that the sum of shareholder loans plus shareholder equity represents a large percentage of the total net worth of  shareholders,  why don’t shareholders integrate their payouts? (salary plus dividends).

It’s a good point. If a shareholder’s remuneration was $75K a year (in salary income) and it was changed to $50K in salary and $25K in dividends, the tax bite would be lower. The $25K is NOT earned income and as such would be excluded from contribution room to an RRSP but, seeing that a small business owner considers their business to be their RRSP,… well .. why not investigate the advantages of this remuneration split?

There must be sufficient equity to pay a dividend of course and no bank loan covenants preventing the declaration of dividends.

There must be billions of dollars tied up in the Shareholder Equity section of small business balance sheets across the country. This is the biggest dilemma facing baby boomers who own CCPCs and are trying to retire.

The old maxim holds: “.. use it or lose it.”


The last couple of posts illustrated some metrics that small business owners should be acutely aware of. All of these metrics will help you understand how your business performs and help you make the right kind of decisions to turn your business around, restore it to profitability or improve profitability.

The retained earnings section of the balance sheet is the location where the fruits of your labour should be seen. Hopefully, this will increase year-over-year. A business that adds retained earnings to the balance sheet will improve the balance sheet, make the balance sheet more attractive to lenders and will improve the capitalization of the business.

It seems intuitive – but it isn’t.  If the business generates good retained earnings it allows the business to add more external capital to put to work – that will increase profits in the future and further increase retained earnings. Many small business owners don’t understand this.

There is another challenge that small businesses with good retained earnings face – how to monetize these retained earnings.

This will be dealt with in a subsequent post.