March 2013


Business Valuation & Succession Planning

If the shareholder of an owner-managed business decides to retire without ownership passing to family members, a number of factors should be considered.

How will the business carry on?  In some cases it can be sold to an employee or management team in whom the owner has confidence.  Often, however, the prospective buyer will not have funds available to make the purchase.

In this case, the owner can set up a plan in which the current value of the business will be frozen at its fair market value and the prospective owners purchase the company for that frozen value over time.

This is often a successful succession strategy, and will depend upon determining a fair, objective value for the business.

The services of a Chartered Business Valuator can provide the foundation for a plan that ensures fairness for all concerned.  Lipton LLP has announced the launch of Lipton Polisuk Inc. — Valuation & Litigation Support.  Led by Steven Polisuk, Lipton Polisuk offers a suite of advisory services including business valuation, litigation support and forensic accounting.

Using a valuator, a fair purchase price can be determined, allowing the old and new owners of the business to obtain their financial goals.

Now, the company can begin to issue new common shares, which the new owners can obtain at a normal price to capture future profits.  A portion of those profits can then be used to pay the original owners over time for the purchase of the company.

As always, stay organized, detailed cash flows will be necessary to make sure that enough money will be earned to fund the purchase.

Jeff Nightingale is the Senior Tax Partner at Lipton LLP, Chartered Accountants.  Jeff has written a number of publications and speaks to a variety of professional and business groups, including the Canadian Tax Foundation, the Institute of Chartered Accountants of Ontario and The Law Society of Upper Canada.  He has also completed the CICA In-Depth Tax Course as well as other advanced taxation courses and is a member of the Canadian Tax Foundation and the Society of Trust and Estate Practitioners.

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2013 Federal Budget Commentary

Like its predecessor, the March 21, 2013 federal budget is entitled “Jobs, Growth, and Long-Term Prosperity”. In his eighth budget, finance minister Jim Flaherty has tabled a document focused on balancing the books, targeted spending, and fine-tuning the tax rules.

Despite being challenged by lower-than-expected growth in the Canadian economy, the government says it is on course to eliminate the deficit and return to a balanced budget by 2015-16. It projects a $25.9 billion deficit for 2012-13, an $18.7 billion deficit in 2013-14, a $6.6 billion deficit for 2014-15, and a surplus of $0.8 billion in 2015-16.

Against this backdrop of deficit reduction, however, the government has introduced several new initiatives to stimulate economic activity and get more Canadians back to work. But even with this commitment to program spending, the deficit will continue to fall because of austerity measures already in place.

The Canada Job Grant program, which received a great deal of pre-budget attention, will provide up to $15,000 per trainee, $5,000 each from the federal and provincial or territorial governments, and $5,000 from the employer. The program is expected to help key industries, like companies in the energy sector, hire the people they need, although it may take up to a year for the federal government to renegotiate existing agreements with the provinces and territories.

The new Building Canada plan pledges more than $47 billion in new infrastructure spending over ten years, starting in 2014-15. This should help restore some of the crumbling infrastructure that is plaguing Canadian cities. What’s more, the initiative makes a link between federal construction and maintenance procurement practices and the hiring of apprentices.

For small businesses, there are a number of welcome changes that will streamline compliance. These include:

  • Enhancing CRA’s online enquiries service by allowing small business taxpayers to “go paperless” and rely exclusively on electronic notices stored in the secure My Business portal
  • Increasing accountability by introducing “Agent ID”, giving taxpayers access to the names and other identifying details of CRA call centre agents
  • Working to expand the use of the Business Number to more governments
  • Introducing a pilot program for pre-approval of SR&ED claims
  • Streamlining the approval process for authorization of third parties to conduct business tax matters on their clients’ behalf.


The budget also contains stimulus measures for the manufacturing sector, including:

  • A two-year extension of the temporary accelerated capital cost allowance for new investment in machinery and equipment
  • Renewal of the Federal Economic Development Agency (FedDev Ontario) for southern Ontario with funding of $920 million over five years
  • Investing $200 million over five years in the new Advanced Manufacturing Fund in Ontario
  • Streamlining foreign trade zone policies and programs by cutting red tape and improving access
  • Extending the Hiring
  • Credit for Small Business for an additional year


Please click the link to read Lipton’s full commentary of Mr. Flaherty’s latest budget.

2013 Federal Budget Commentary

Jeff Nightingale is the Senior Tax Partner at Lipton LLP, Chartered Accountants.  Jeff has written a number of publications and speaks to a variety of professional and business groups, including the Canadian Tax Foundation, the Institute of Chartered Accountants of Ontario and The Law Scociety of Upper Canada.  He has also completed the CICA In-Depth Tax Course as well as other advanced taxation courses and is a member of the Canadian Tax Foundation and the Society of Trust and Estate Practitioners.

Learn More about Jeff Nightingale

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Risk Mitigation – When Catastrophe Strikes

In the course of doing business, a company may be affected by an insurable loss, such as a fire, flood, equipment failure or explosion. These incidents, if not handled properly, can result in significant damage to the company’s profit, financial stability and possibly its reputation. It cannot rely solely on its insurance policy to avoid the economic loss that can result from an incident.
The important steps to mitigate the risks of a loss include:

  • Having a formal risk mitigation plan in place.
  • Accounting for the claim with a proper reporting structure.
  • Properly quantifying the claim and being actively involved in managing the relationship with the insurance company.


Risk mitigation plan

At first, be prepared: Have a risk mitigation plan in place that can be put into action immediately upon the occurrence of the incident.
As part of the plan, identify people who will take charge and manage the claim process. Each member of the team would have preset tasks in the event of an incident. The plan should also specify alternative production facilities, suppliers and warehouse space, with the goal being to keep the company operational and minimize losses.

As a next step, carefully review insurance policies and identify all potential issues regarding coverage, valuations, exclusions and endorsements. If the policy is unclear, it should be reviewed with the insurance broker to make sure there is adequate coverage. Once an incident occurs, it will be too late to find out about coverage limitations that jeopardize the company’s ability to recover.
External advisers should be identified in advance to assist during the incident. They may include accountants, lawyers, risk managers, engineers and others. Using external advisers who can help with the claims process will allow the company to focus on its day-to-day operations. They will also allow the company to level the playing field with the insurance company and its representatives who deal with claims on a daily basis.

Also, most insurance policies will cover the costs of professional services needed to assist with the claims process, through the professional fee endorsement portion of the policy. External advisers are knowledgeable with how claims work and can accelerate the process, increase the recovery amount from the insurance company and relieve pressure on the company’s staff.

Accounting for a claim

It is vital to capture all loss-related costs. The company should set up an insurance receivable account on its balance sheet, with sub-accounts to capture all the costs in the correct “buckets” in accordance with the insurance policy. These may include cleanup and debris removal, property repairs, etc.

It is important to have the costs categorized correctly to facilitate the payment of the insurance claim. If the costs incurred from the incident are not allocated to the correct categories, the insurer may not pay for them. For example, costs related to the business interruption portion of the claim, such as loss of sales resulting from downtime, must be accounted for separately from property damage costs. Supporting documents should be included to provide backup for the costs, such as invoices, time sheets, cancelled cheques and correspondence.

Managing the relationship

In quantifying the claim, the company’s methodology should be consistent with its insurance policy. One of the most widely used methods is known as the “three-column approach,” which uses a modified income statement and presents the calculation in three columns. Column one itemizes results the company expected to achieve if not for the incident. Column two is the actual results achieved following the incident. The third column is the difference between the two, or the loss incurred. The company uses this method for its sales, cost of sales and extra expenses.

The company lead representative in charge of the claim should work closely and openly with the insurance company. This is not an adversarial relationship and should not be treated as such. The insurance broker should also be used as a resource to help co-ordinate the loss recovery. It is important to keep the insurer and adjusters advised of any changes that may affect the claim.
If after submitting its claim the company is not happy with the insurer’s settlement offer, it should take steps to explain its position carefully. External experts experienced in dealing with the insurer can be of assistance during this process. Make sure that all the components of the claim have been set out clearly and accurately with adequate supporting documentation.

As mentioned previously, the insurer requires documentation and will not just take your word for it. The company should present its claim in person to the insurer and may request that its broker be in attendance. Do not change the rationale or methodology of the claim once it has been submitted as this will damage the credibility of the claim.
By following the steps detailed in this article, a company can be better prepared to mitigate the losses from a loss incident.

The following article appears in the March 8, 2013 edition of Lawyers Weekly and can be viewed in it’s original form here.


Steven Polisuk is a Chartered Business Valuator, Certified Fraud Examiner and recognized as an expert witness in the Ontario Superior Court of Justice for the quantification of economic damages. For the past twelve years, Steven’s practice has focused exclusively in the areas of valuation, litigation support, personal injury claims and forensic accounting. Steven has published several articles and is well respected in his field as an expert in damage quantification for commercial litigation, insurance claims (including business interruption) and for personal injury matters. 

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Beware of Fraudulent Communications

Occasionally, taxpayers may  receive, either by telephone, mail, or email, a communication that claims to be  from the Canada Revenue Agency (CRA) but is NOT. In all these cases, the communication requests personal  information, such as a social insurance, credit card, bank account, and passport numbers, from the taxpayer. These fraudulent communications are also referred to as scams or phishing.

Invariably, the communication  argues that this personal information is needed so that the taxpayer can receive a refund or benefit payment. Another common  scam refers the person to a Web  site resembling the CRA’s Web site where the person is asked to verify their identity by entering  personal information. Taxpayers should not respond to such fraudulent communications.

To better equip taxpayers to identify  those communications that do not come from the CRA, the following general  guidelines are provided.

The CRA does not do the following:

  • The CRA will not  request  personal information of any kind from a taxpayer by email.
  • The CRA will not  divulge taxpayer information to another person unless formal authorization is  provided by the taxpayer.
  • The CRA will not  leave any personal information on an answering machine.


When in doubt, ask yourself the following:

  • Am I expecting additional money from the CRA?
  • Does this sound too good to be true?
  • Is the requester asking for information I would not  include with my tax return?
  • Is the requester asking for information I know the CRA already has on file for me?
  • How did the requester get my email address?
  • Am I confident I know who is asking for the  information?

Examples You will find examples of a fraudulent letter, emails, and online refund forms on the CRA’s Web site. As per telephone calls, the CRA will occasionally leave messages for taxpayers on their answering machines. In these cases, a callback number will be provided along with a request to have the taxpayer’s SIN available upon callback. However, it is important to note that not all telephone messages purporting to be from the CRA are genuine. Should taxpayers wish to verify the authenticity of a CRA telephone number, they should contact the CRA directly by using the numbers on our Telephone numbers page.  For business-related calls, contact 1-800-959-5525 and for individual concerns, contact 1-800-959-8281.

If you have responded to a fraudulent communication and have become a victim of fraud, please contact the Royal Canadian Mounted Police’s Canadian Anti-Fraud Centre by email at info@antifraudcentre.ca or call 1-888-495-8501.

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Preparing for a Merger

One of the most complicated small business decisions you may have to make is whether to merge your business with another. A merger requires a great deal of thought about the complexities involved.

There is no real one-size-fits-all formula.  The most successful mergers start when companies look to increase market share and strengthen resources—not to save a struggling enterprise—so it’s beneficial to look at a potential merger as an improvement rather than a saving grace.

Advantages of Merging

Merging with another company brings along its customer base, which can increase your business.  Merging is a way to encourage growth, you can look at it as a way to open up new channels and new markets.

For example, if you’re a technology company looking to reach out to a consumer market, it would be smart to merge with a software company because your services complement each other, and you would automatically have direct access to a new market and already established customer base.

Merging can be a great business venture for strengthening a part of your company that is weak, but don’t count on a merger to save two failing companies.  If both companies are broke, chances are they won’t make it together.

How to merge smoothly

Although merging your business with another  can be a good opportunity to grow, that doesn’t mean it will be easy.  A merge integrates culture, technology and people. Making it work after the fact is where the real skill is.

Here are some tips for facilitating the merge:

Focus on core values

It’s important to make sure your values are aligned before joining. One business might be philanthropic and one might be mercenary, but they must have the same core values when merging in order to achieve the same goals.

Keep lines of communication open

When it comes to employees, treat the merge almost like a marriage. You’re bringing together different backgrounds and histories, so there has to be constant communication to make sure everyone’s voice is being heard and no one feels slighted.  Put all goals, boundaries and expectations in writing to guarantee everyone is on the same page.

Keep job roles as consistent as possible

Role changes need to really stay as closely related as possible to what employees were doing before the merger unless an opportunity opens in an area where an employee has the opportunity to do something they are really passionate about. You want people to excel with a merger and a completely new role could set up for that employee’s failure.

Encourage team cohesiveness

A merger is going to be successful based on how you treat the employees. To help the new team work well together, have a social event or a team-building session in the early stages of the merge. It will allow everyone to get to know each other better, which makes for better teamwork.

When preparing for a merge, insuring the right people are there to guide you is critical.   Finding the right bankers, and the right people is something I always advise to my clients.   Do your homework, take your time and make sure your lawyers and business advisors are with you every step of the way.

Michael Wagman’s extensive experience includes audit and accounting, tax, estate, family and succession planning, corporate finance and business advisory services for an array of owner-managed businesses. His industry specialties include real estate and construction, distribution, manufacturing and technology. Michael’s portfolio also includes several public companies and mortgage investment corporations.  Michael is a member of the Canadian Tax Foundation and the Society of Trust and Estate Practitioners.

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