20 Strategies to Strengthen your Business in Challenging Times
Opportunities
A company on solid financial footing has many options and opportunities during an economic downturn. They may range from internal opportunities, such as re-organizing the business, to exploring a new process that can make a business more profitable and sustainable, to external opportunities like purchasing a business.
15. Consider a Holding Company
A holding company can provide a number of benefits, including:
Pay out corporate earnings of a subsidiary corporation as a tax-free intercorporate dividend – Where dividends are paid by a subsidiary to a holding company, this may provide asset protection for the amount paid, and may help ensure the shares of the corporation remain eligible for the capital gains exemption;
Cash in the tax cost of shares you have acquired – If you bought shares of a corporation and your tax cost is higher than the paid-up capital of the shares, you may be able to transfer your shares to a holding company in return for debt or paid-up capital, which can be repaid tax-free. This planning may not be possible if you acquired shares from a relative;
Protect tangible assets such as land and buildings from business risk – A holding company can also provide protection for tangible property such as land or buildings. This property can be held in a holding company even if it is being used by a subsidiary in its business. The holding company shares can still be eligible for the capital gains exemption if certain conditions are met; and
Protect “GRIP” from future losses – Under the dividend taxation rules, a private company can pay eligible dividends (which are taxed at a lower rate) to the extent that the corporation has a positive balance in its general rate income pool (GRIP) at year-end. If a corporation has losses in the future, this GRIP balance could be eroded. Paying the GRIP balance to a parent company as an eligible dividend can protect that balance from future losses.
16. Review Your Estate Plan
A downturn in investment and asset values actually presents an opportunity from an estate planning perspective. For example, if you intend to pass on investment or business assets to your children, an estate freeze now can make sense as it will lock the tax that will become payable when you dispose of your assets, either during your lifetime or on death. Under an estate freeze, the current value of the assets is frozen in a corporation for your benefit while allowing future growth accrue to others, such as your children. Also, if you completed an estate freeze in the past, the downturn also represents an opportunity to enhance that freeze. In particular, if the value of the corporation has declined since the freeze, it may be possible to re-freeze your preferred shares at a lower value, thereby reducing the amount that will be taxed in your hands on death or on a sale. A well-prepared valuation report will be beneficial in not only establishing the value of the business, but also in providing the support needed for tax purposes.
17. Enhance Your Business Processes
Whether economic times are good or bad, every business is looking for ways to increase productivity, reduce costs, lower risks and increase profitability. Optimizing your business processes will lead to improved margins, increased revenue, elimination of waste and improved customer satisfaction. How do you know if you should review your business processes?
- Are your financial processes becoming increasingly technologically driven, adding unwanted costs?
- Are your operations growing quickly and your infrastructure struggling to keep up?
- Are you introducing new systems or operating multiple systems?
- Are your costs escalating and putting pressure on margins?
Linking expensive legacy processes and systems to new, more streamlined and efficient ways of doing business will allow you to map business processes, such as order to cash or hire to pay; transform that map into an application or set of applications; and manage the electronic workflow to monitor that the work gets done in the most efficient and cost-effective manner and allow timely changes with minimal cost.
18. Managing Enterprise Risk
New economic and strategic risks, corporate governance and financial reporting challenges can threaten the viability or success of your business, especially in tough economic times. As a result, both public and private companies need to re-evaluate all of the general, ongoing operational assessments, which identify potential risks that could prevent a company from meeting its strategic goals and objectives. It is an initiative that delves deeper than a basic risk assessment; because it is continuous in nature, it helps to provide an organization with the flags and markers it needs to keep it on course, steering away from potential trouble.
Companies should consider the benefits that a formal enterprise risk management strategy will bring them, including:
- Creating a culture of risk awareness within the organization;
- Enabling better business performance;
- Promoting achievement of goals and objectives;
- Strengthening the internal controls structure; and
- Establishing accountability for goals and objectives as well as risk mitigation.
19. Consider Buying a Business
The current times can create valuable opportunities that may not otherwise exist. Competitors may need to sell due to financial problems. Your desire to take this opportunity may be strong, but how do you ensure that it’s the right decision to make? It’s important to consider whether the purchase meets the strategic plan of your business. You need to identify the synergies that may exist, how the purchase compliments your business, whether you are properly capitalized to finance the acquisition and whether other alternative acquisitions would be more beneficial. A proper plan for acquiring a business ensures you are maximizing the use of your valuable corporate dollars. The process should consider the following steps:
a) Identify potential target acquisitions that compliment your business plan;
b) Research the potential target acquisition to understand the business and reduce the risk of an unpleasant surprise;
c) Ensure you get what you are planning to buy – perform due diligence;
d) Ensure you have the capital structure to finance it;
e) Negotiate your best price so it fits your overall plan; and
f) Ensure you have a solid purchase agreement.
20. Consider Selling Your Business
In a challenging economy, it may not be the best time to optimize your return by selling your business. However, there are various situations when a sale may be warranted including:
- Retirement;
- Need of additional capital;
- Partnership/shareholder or family disputes;
- Desire to realize on the success of the business;
- Death or illness of a key member or staff;
- Need for personal liquidity; and/or
- Need for a change.
When selling, it is important that you look at ways to maximize your proceeds from sale. If at all possible, you may want to re-think selling your business, as there may be fewer or no buyers, or you may have to take an offer significantly less than what you believe its worth. If you have determined that you need to sell, a properly prepared plan will assist your business in maximizing the sale price. Preparation begins long before the sale is announced. Having a solid management team, strong business and marketing plans and sound financial statements are critical steps of the process.
Solid management team – A strong management team is action-oriented, delivery focused and able to integrate the direction of the business with the needs of its various departments. A business that is highly dependent on the owner and/or key employees attracts more risks to a prospective buyer. Spreading the duties, tasks and contacts to others within the business provides greater confidence that its performance can be maintained in the future
Strong business and marketing plans – The existence of strong business and marketing plans provides comfort and ultimately greater value to a prospective buyer. A strong business plan provides vision, outlines its objectives, its strategies, its market place and its financial forecasts. A strong marketing plan assesses the customer needs, develops a product or service to meet those needs, communicates the attributes of them to the customers and outlines the distribution channels for delivery.
Sound financial statements – Financial statements are one of the most beneficial indicators of the future performance of the business. As a result, the level of reliance that can be placed on those statements is very important. An audited financial statement places the highest degree of reliance. A Review Engagement Report also provides a level of assurance that the financial information is plausible. Often comfort in a non-assurance report can be obtained when they are prepared by a reputable accounting firm.
If these elements are not in place and you have the time, it may be wise to delay so you can make the necessary changes. It’s important to be aware that holding on to your business, when you are otherwise ready to sell, contains inherent risks. You can never be guaranteed that these tough economic times will not worsen or last longer than anticipated. In any economic climate, a properly prepared plan to sell your business is vital to ensure that you maximize your price.
Your approach to marketing your business for sale is equally critical. It’s important that the business is not offered for sale like a commodity. This process tends to lead to bargain shoppers, which does not generally result in obtaining the best price. Targeting buyers who identify synergies with your business may lead to a higher price for you.
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