Canada

For private business owners, success is often the result of concentration — concentration of time and effort, talent, customers, decision-making, ownership, and, ultimately, wealth. A business owner may:

  • Spend most of his or her time in the business
  • Concentrate management experience and responsibility in a few key employees
  • Drive growth by focusing on a few top customers
  • Ensure that business decisions are made by a small group of key decision-makers
  • Reinvest profits back into the business rather than taking money off the table to invest elsewhere

As the business owner continues his or her journey from early-stage growth to steady-state growth to eventually preparing the business for sale, diversification plays an increasingly important role and the risks of concentration become more pronounced. A diversified business will often have a better chance of long-term survival and, in a sale process, may command a higher sale price. Furthermore, as the business continues to grow, the business owner's personal wealth may become more concentrated in their business, making wealth-transfer strategies a critical tool for overall wealth diversification.

Employees

Risk: Management talent is concentrated in a few key employees

  • Identify employees that are critical to your business, ensure that they are in the right role, motivate them to stay in the business (via compensation, formal employment agreement, equity participation), and develop a formal succession plan in the event that they leave

Customers

Risk: Sales are generated primarily from a few key customers

  • Understand the financial and operational impact of losing key customers
  • Review customer contracts to evaluate ways to broaden your product offerings and/or lock in your customers for a longer term
  • Strengthen your relationship with key customers by developing more points of contact and better understanding their priorities and changing needs
  • Allocate capital and resources to diversifying your customer base and exploring growth opportunities in different industries, geographies and products

Suppliers

Risk: Production is dependent on a few key supplier relationships

  • Understand the alternatives in the marketplace — new suppliers and new technology — that will make your business less dependent on your key suppliers
  • Develop a formal process and criteria for evaluating and periodically reviewing the financial health of your suppliers
  • Develop a disaster-recovery plan in the event of the loss of a key supplier
  • Determine whether any aspects of your supply chain may be brought in-house or acquired

Decision-Making

Risk: Decision-making is concentrated among a few people

  • Develop a formal corporate-governance framework that outlines and communicates how (and with whom) information about your business is shared and how decisions are made at each organizational level of your business: family, shareholders, board members and management

Your Time

Risk: You spend most of your time in your business

  • Explore other outlets for your creative energy — hobbies, charity, family engagement, business-owner groups and other business ventures
  • Imagine what your life will look like after you are no longer involved in your business (for example, when you sell your business or retire)

Your Wealth

Risk: A majority of your wealth is concentrated in your business holdings

  • Develop a flexible distribution policy that allows you to take money out of the business during good times and reinvest in the business when needed
  • Work with your financial advisor to develop a diversified investment plan for your non-business liquid assets
  • Review your estate plan and implement wealth strategies that transfer economic ownership of your business to your heirs in order to reduce your estate tax exposure
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