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]]>Jim Woodward, who at the time was general manager of ASL Paving’s Saskatoon division, was inspecting the surveying work of a newly hired engineering student. “That’s a mistake,” noted Woodward, pointing to an obvious and costly error. The student’s heart sank at the thought that his summer job might be over before it had really begun. Woodward continued, his voice calm but firm. “Well, we’re going to fix it. We’re going to learn from it. And we’re going to move on.” That was it. No tongue-lashing. No termination. Just one brief piece of advice: “Don’t do it again.”
That student was Dave Paslawski, who now, 34 years later, is president and a major shareholder of ASL Paving Ltd., a road building company with divisions in Saskatoon, Regina and Lloydminster. “I learned a lot about leadership from Jim Woodward,” says Paslawski. “After I graduated, I decided to return to ASL full-time. Some of my classmates probably thought I was wasting my engineering degree, but I loved the company and the people in it.” Paslawski did eventually leave ASL for a job in Calgary, but returned in 2004 when he was invited to become a shareholder and vice-president.
Paslawski’s affinity for ASL is shared by many in the company. Two-thirds of the employees – upwards of 200 during good years – are seasonal workers. Each spring, more than 80% return. In six months, they will each work the equivalent of 10 months at a typical full-time job. Some of them have been doing this for 20 or more years. “It’s hard work, too,” says Wade Mitchell, who retired as president in 2014 but still owns shares in the company. “The asphalt comes out of the paver at 160° Celsius. You work a lot of overtime. It doesn’t take long for a hire to figure out if they belong here or not, but those who do decide to stay usually become long-term employees. ASL was founded in 1950, and during my time as president there were at least three employees who celebrated 50 years with the company.”
Paslawski is also typical in another – and often surprising – way. “One of the unique things about ASL is that from its inception it has hired a significant number of engineers and other professionals,” he says, adding that ASL recruits primarily from universities and technical schools. Almost all of these hires start at entry-level positions.
THE PEOPLE THAT WERE HERE WERE THE KIND OF PEOPLE I WANTED TO WORK WITH. THEIR VALUES ALIGNED WITH MY OWN.
James Fraser, vice-president of operations, also worked summers at ASL while he was in university. He joined ASL full-time in 2006 because, as he says, “The people that were here were the kind of people I wanted to work with. Their values aligned with my own.” When Mitchell retired in 2014, Fraser became the newest of the three shareholders. His career at ASL, like that of many others, helps to explain the company’s growth and success from one generation to the next.
Promoting from within
“We almost invariably promote from within,” says Fraser. “Everyone at ASL is encouraged to take on more responsibility, to show what they can do, even if that means making mistakes. I tell our people not to be afraid to speak up, to try new things, and if they get in hot water because of it, we are there to back them up.” With ongoing opportunities to prove themselves, employees tend to evolve into positions of greater responsibility, rather than jumping into them. Fraser’s transition to shareholder and vice-president began with casual conversations with existing shareholders years before Fraser acquired his shares.
Paslawski says ASL’s size is what makes it possible to successfully promote from within. “We’re big enough that we have enough people to choose from, yet not so big that good people get overlooked. We’re constantly evaluating our pool of talent.” ASL’s size also helps to bridge generations, ensuring leadership that remains relevant to changing times. Mitchell, who became president in 2004, is eight years older than Paslawski, who is 15 years older than Fraser. There are others “in the bullpen”; the casual conversations continue.
More than meets the eye
To the disgruntled driver whose daily commute is disrupted by a paving crew, it might seem that road building has been done the same way for decades, but there have been changes in the industry, particularly in the past 20 years. “There’s much more emphasis on quality now,” says Fraser. “The specifications are much more detailed, and there are many more professionals overseeing the work. Back in the day, your grading could be plus or minus 5 centimetres from what was specified, and that was considered acceptable. Now, you have to be within five to 10 millimetres. Although difficult, this has made us a better contractor.”
The other major shift in the construction industry as a whole is the emphasis on safety. ASL was a leader in its industry, developing a strict safety protocol, supported by a culture that encourages people to speak up and look out for the well-being of their co-workers as well as their own.
It’s not a business for the faint of heart and it’s a high-risk venture, especially if you don’t understand the intricacies and costs involved. “Gravel, asphalt and concrete are expensive,” says Fraser. “So is the equipment. All of our equipment has a significant capital cost to it with a relatively short-term life expectancy. It is a very capital-intensive business.” Mistakes, too, can be very costly. Concrete cures and is expensive to remove and replace. An incorrectly paved street could wipe out your entire year’s profits.
Bidding on projects is also expensive – painfully so, if you lose. “On bigger projects, we would hope to win an average of one in three bids,” says Fraser. Bidding on massive projects, where a consortium is formed and led by a general contractor, can cost the company leading the pursuit millions of dollars. Fraser points to the North Commuter Bridge Project, where ASL was part of the successful bid led by Graham Construction. The federal government, which was funding a portion of the project along with the City of Saskatoon and Government of Saskatchewan, tied the funding to the P3 model. Under those terms, the Graham team, including ASL, would design and build the bridge and adjacent roadways, maintain the property for 30 years and then turn it over to the City of Saskatoon in pristine condition in 2048. Every detail of the bids would be scrutinized by many eyes. Fraser estimates that ASL devoted more than a thousand hours to its part of the bid, including trips to Vancouver to meet with the project partners. “The day I got the news that we’d won the bid was one of the proudest days of my career,” says Fraser. ASL is now responsible for maintaining the roads and the areas adjacent to what is now the Chief Mistawasis Bridge.
To increase its odds for success, ASL Paving has adopted the strategy of concentrating on the urban market, leaving rural projects such as highways to other firms. The crews in the rural areas must work with portable asphalt plants so they can easily relocate within the province and beyond its borders. In contrast, ASL has permanent stationary plants located in Saskatoon, Regina and Lloydminster. The permanent plants reinforce ASL’s reputation for dependability in each of its cities, a visible assurance to civic planners and developers that ASL is here to stay. The strategy has worked, making ASL Paving Ltd. the largest urban-based road builder in the province.
Although ASL remains focused on the urban market, the economic downturn has prompted the company to pursue projects outside city limits. This necessitates portable asphalt plants. Thanks to the company’s foresight, ASL has two such plants. “When I became president, there was some opposition to restoring an existing portable plant, but we went ahead with the work anyway. Having portable plants turned out to be the right decision. If we hadn’t done that, it would have made a difference in our ability to adjust to the market. The hallmark of a successful contractor is the willingness to be creative, to do things differently.”
WHAT ALL THREE SENIOR LEADERS HAVE IN COMMON IS THEIR COMMITMENT TO SUPPORTING AND DEVELOPING THEIR EMPLOYEES, A LONGSTANDING TRADITION THAT HAS FOSTERED THE TEAMWORK AND CAN-DO ATTITUDE THAT PERMEATES THE ORGANIZATION.
As was the case with the portable plants, all three shareholders admit that, as with any partnership, there can be times when you don’t have a meeting of the minds. The difference in ages can sometimes come into play. An older partner on the verge of selling their shares might have a very different view of what do with the profits than a younger partner who wants to aggressively grow the business. There can also be different professional perspectives, such as when Mitchell was president and Paslawski was vice-president. Mitchell, an accountant, was keenly interested in the spreadsheets. Paslawski, the engineer, was focused on equipment and processes. Mitchell’s advice to those considering entering into a partnership is to first be sure you’ve clarified who is going to be responsible for what, and then “do your best not to step on the other’s toes.”
Continuing the commitment
What all three senior leaders have in common is their commitment to supporting and developing their employees, a longstanding tradition that has fostered the teamwork and can-do attitude that permeates the organization. All three shareholders are confident that ASL’s culture will remain robust, regardless of economic conditions, because their employees have embraced it and readily instill it in those who join their team.
Mitchell’s son, Drew, remembers that when he was a boy, he and his brother would sometimes go with their father to the office evenings and weekends. “While Dad worked, my brother and I would play with mini-sticks and a ball in the hallway outside his office, using the vault as a goal. Later, I worked summers at ASL when I was going to university.” Drew Mitchell is now general manager of the Saskatoon division. The tradition continues.
First published in the December 2020 edition of The Business Advisor.
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]]>One SREDA program helps people support local businesses.
The post How local is your business? appeared first on The Business Advisor.
]]>Particularly since the onset of the pandemic, people want to support local businesses to help others within their own community.
Buying local makes a difference. A dollar spent locally will have more than a dollar’s impact on the Saskatoon Region’s economy. The local company you spent your dollar with will use it to hire local people. It might source some of its own products and services from local vendors. And company profits will stay here in our community. Your dollar goes a long way.
In addition to supporting our neighbours, buying local makes sense for business reasons too. Sometimes prices are lower because you can avoid expenses such as shipping charges from out-of-province suppliers. In other situations, buying local means you’ll receive better customer service or quicker delivery. Whatever your reason, doing business locally is good for business.
Buying local makes a difference. A dollar spent locally will have more than a dollar’s impact on the Saskatoon Region’s economy.
How local is your business?
As Joanne Baczuk, Director of Business Development for the Saskatoon Regional Economic Development Authority (SREDA) explains, some businesses are more local than others. “A truly local business has local ownership, buys goods and services it needs to operate from other local suppliers, and supports the local community through donations or volunteering time for worthy causes.”
One example of a company with a strong local focus is Black Fox Farm and Distillery, a diversified farming operation that produces award-winning spirits (such as oaked gin and raspberry liqueur) and boasts the largest cut flower farm on the prairies.
Barb Stefanyshyn-Cote and John Cote, Black Fox’s owners, are mindful of supporting local companies when selecting suppliers. Over 90% of what they spend to run their business is spent in the local economy. This includes things like graphic design services for the labels on their spirits and the marketing services to promote their products. It includes training services for employees and maintenance services on equipment. They hire local employees to work in their fields and their processing plant. The few things they source from elsewhere cannot be purchased locally.
Local companies tend to support their local community. Black Fox donated hand sanitizer it manufactured at the start of the pandemic. The company’s owners have donated the use of their facility to charities, they have served on boards of directors for local organizations, and they’ve donated flowers to hospital emergency workers.
Which companies are local?
People often can’t tell whether a company is truly local. That’s where SREDA’s Local Link program comes in.
“The Local Link program helps consumers support local businesses in the Saskatoon Region,” Baczuk explains. “By checking for the Gold, Silver, or Bronze Local Link label, shoppers can learn more about how close to their home a product or service is created.”
Saskatoon Region businesses can apply to the program to measure how locally they operate, from ownership to procurement, and can use the process to find ways of increasing their local engagement in the Saskatoon Regional economy.
SREDA launched this new program in partnership with the Greater Saskatoon Chamber of Commerce and the Prairie Sky Chamber of Commerce, representing the Warman and Martensville regions.
Alex Fallon, President and CEO of SREDA, explained how Local Link was created.
“There’s no doubt COVID-19 has greatly impacted our local businesses, and we knew we had to do something to take the ‘shop local’ message even further. So, we did what SREDA does best: we invented a new program that will benefit our local economy. Local Link will help businesses become even more local, and help consumers make informed decisions when shopping. For SREDA, the program will help us identify gaps in our local supply chain, giving us insight into the type of businesses we need here. Then, more businesses will be linked together right here in our own backyard. It’s about reimagining what’s possible in terms of creating a total supply chain within the Saskatoon Region.”
When you display the Local Link label, your potential customers can easily see your commitment to supporting the local economy. Consumers will know your business is local and shop accordingly. Businesses can support your company through choosing which suppliers they use.
Strengthening your local commitment
Participating in the Local Link program will help you become more fully engaged in the local economy. The program will identify areas where your company uses an out-of-market supplier, and SREDA can help you find local suppliers to increase your local content.
Local companies tend to do business with other local companies. One local company that’s part of the Local Link program, Innovative Stonecraft, was unable to promote its product through tradeshows this year because of the pandemic. Instead, it focused on connecting with architects who could use Innovative Stonecraft’s construction materials in building designs. Baczuk introduced Innovative Stonecraft to Henry Downing Architects, another Local Link program participant, and the two companies immediately recognized that the stone products were suitable for some of the firm’s architecture work.
When you are considering where to buy something you need to think a bit closer to home than Amazon. Look for the Local Link label. Saskatoon’s business community is vibrant and diverse. You can buy just about everything you need from someone just around the corner.
First published in the December 2020 edition of The Business Advisor.
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]]>How Saskatoon Community Foundation offers a unique giving solution for every donor.
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It was day two of the covid-19 crisis, and Carm Michalenko, CEO of the Saskatoon Community Foundation, was keenly aware the needs of the community had changed overnight. Businesses shut their doors and people were told to stay home. Although many people could take care of themselves, the lockdown would have an unexpected side effect. Community support services were forced to close too, and our city’s most vulnerable were left behind. Some families had no means to put food on the table. Many did not have proper housing to stay safe. The need for mental health support was greater than ever.
Michalenko, the foundation board, and her staff team moved quickly to create the Saskatoon Covid-19 Community Response Fund, and joined a group of 60 Saskatoon agencies, the Inter-Agency Response to covid-19, in mobilizing community support, acting as one of the primary funding partners. Funding and donations from the community enabled the agencies’ staff to coordinate delivery of supplies such as food and water, to provide personal protective equipment where required, and to offer other support to those who were vulnerable or at risk of becoming vulnerable due to isolation. The Inter-Agency Response partnership made an immediate and significant difference for vulnerable population, which helped the entire community stay safe in the early days of the pandemic.
The foundation staff team combines expertise in planned giving, community granting, and investment to offer a unique giving solution for every donor.
“This level of coordination and collaboration was an amazing feat; a model which I believe can be replicated for other complex social issues. The Saskatoon Community Foundation is currently deploying over $2 million from donors and federal sources,” says Michalenko. She is quick to credit the donors who stepped forward and the agencies that delivered services. “We are thankful for the generous individuals and businesses who helped meet community needs caused by the pandemic. And credit should go to those working in organizations like The Friendship Inn. They are the ones on the front line making sure people are fed. Our role is to create a bridge for donors with charities to enable them to do their good work.”
The community continues to be incredibly generous. In 2019, the Saskatoon Community Foundation granted over $3.3 million for programming and initiatives on behalf of donors. Michalenko is clear that these funds have had an impact. “Donations we have been trusted with were used to create positive change in our community, through the Community Fund for Reconciliation, Quality of Life Fund, Youth Endowment Saskatoon, and many other funds directed by donors.” The foundation wholeheartedly embraces the need to support and partner with organizations. Funds created by donors support a wide range of areas, from arts and culture to food security to health care and more.
The foundation staff team combines expertise in planned giving, community granting, and investment, to offer a unique giving solution for every donor. The Saskatoon Community Foundationnwas founded 50 years ago by a visionary group of committed people, mostly members of the business community, who wanted to address inequity. Their business model was to create endowments that would retain the principal while using interest earned to support people in need in the city. And now more than ever, nonendowed funds have gained popularity ensuring immediate support to charities.
“The foundation was created by an act of legislature that ensures it will be here in perpetuity,” explains Michalenko. Today the foundation represents over 350 fund holders and manages an endowment of $50 million, as well as non-endowed and managed funds of $24 million, ensuring a stream of grants flows into the community forever. Its staff team combines expertise in planned giving, community granting, and finance, to offer a unique giving solution for every donor. Businesses, individuals, and family foundations all look to the foundation to help them give strategically to create their own enduring legacy.
After 50 years, local businesses and the charitable sector are still working together today to benefit our city. Michalenko uses the analogy of a supply chain to explain the connection. “Businesses are an important part of the supply chain of this community. If one link in the chain is weak, every part is disrupted. We know this interconnected system is fragile and that many businesses are struggling. It is inspiring to see the businesses and individuals who are making the community stronger, whether they are giving financially or giving their time to support the charitable sector.”
The foundation’s connections, expertise, and infrastructure link those who want to give to a wide variety of charitable causes. “For the average person living in Saskatoon, as well as for those who have accumulated some wealth, the Saskatoon Community Foundation serves as a way to build a stronger Saskatoon. “It’s about the individual’s story,” Michalenko explains. “Each person has a desire to make a difference. Whether it is small business, arge business, families, or individuals, we all want to impact our community. And we all have the capacity to give.”
People give back to their community for many reasons. But a common theme ties together individual donors’ perspectives. “We see our lives as being bigger than our own individual selves,” Michalenko says. “People have a strong connection to their community. They realize the way to make their community stronger is to create a legacy of inspiration and hope. Regardless of the amount or purpose of your gift, we can ensure you as a donor get to create a unique and meaningful story that reflects who you are.”
First published in the December 2020 edition of The Business Advisor.
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]]>Insight into PFM Capital’s investment in The Wireless Age.
The post Doing What’s Best for the Business appeared first on The Business Advisor.
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The Wireless Age is a SaskTel Mobility wireless dealer with operations throughout Saskatchewan. Allen Cowie, CEO, and Rob Duguid, Founding Partner and CEO at PFM Capital, discuss PFM’s investment in The Wireless Age, among other events.
What made this investment attractive for both parties?
Allen: The business had a long history of good profitability, but the former owner was being held back by the ownership structure.
Rob: A founder tends to be more risk-averse as they move along in their life cycle and hold capital back from the business as opposed to redeploying it. The investment we made was the right thing to do for the former owner as well as the business. What originally attracted us was your management team. We also liked how technology was evolving in the sector and how your company was positioned strongly in a highly competitive market.
What is the nature of the investment?
Rob: We partnered with Allen in a management buyout of the former owner. The company was already quite profitable, so we were able to put in a sizable piece of sub-debt (secondary to a traditional bank loan) that the company could easily support with existing cash flow. That allowed us to keep the equity bucket a little smaller, which enabled us to be close to equal partners with management going into the transaction.
Allen: As management, that structure was a tremendous advantage. Also, we tailored the repayment of the sub-debt to the cash flow of the company. It was manageable for us to set as a certain number of dollars per month.
How did you know there were concerns with the business?
Allen: When we first met, we talked openly about how The Wireless Age was very profitable but struggled from a cash flow perspective because it was not the only business the owning company held. Cash had been removed from our operations to support other businesses. It had put us in a fairly weak position.
Rob: Over the past several years, we have taken a collaborative approach in deciding what to do with the cash that is generated by the company. We’ve worked together to decide whether to take advantage of acquisition opportunities or dividend the cash out to shareholders.
RELATED CONTENT
A collaborative approach is key to exploring and deciding what’s best for a business. Working closely together enables solving problems, diversification, and sharing a future vision.
Watch this video titled Doing What’s Best for the Business with excerpts from this conversation between PFM Capital and The Wireless Age.
What’s next for the partnership?
Rob: We are still looking at growth. We’ve been working together quite closely on ways to diversify.
Allen: When working with PFM, I’ve never felt like I was dealing with a lender. Conversations were never about covenants, ratios, how are we going to get paid back, and what type of return are we getting. Our quarterly meetings were always around what is happening in the business, positive or negative, and what is best for the business. It has allowed our company to thrive, keeps us accountable, and provides great opportunities for our people.
Rob: Absolutely. Even when we had a legal agreement in place and contemplated that something might happen by a certain date, when we got to that point it no longer seemed to make sense. We sat down and talked about it and revised it accordingly. It has been a flexible relationship.
What advice do you have for owners who require capital?
Allen: Look for the relationship that helps support your vision for the business. So many people wait and rush to secure financing when they need to purchase something, or they have a short-term need that they did not see coming.
Rob: It’s a good point. When capital is needed for a succession plan and a management buyout, founders and entrepreneurs should start the process early. It takes a bit of time to bring the team along. The founder needs to be ready for it and accepting of it. It’s also important for the entrepreneurs to make sure that the vision for the company is shared with the investor and that the investor can bring more than just capital, such as identifying business opportunities for growth, other human resources the company may need, or relationships with other types of financial institutions.
Interview has been edited for brevity and clarity.
First published in the December 2020 edition of The Business Advisor.
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]]>The post Crossing the Border: American Taxation appeared first on The Business Advisor.
]]>Illustrations by Don Sparrow
Meet the Dilby family and Dilby & Sons Construction, founded in 1957.
Five family members own shares in the business:
daughter. She is an architect
and now designs and builds
homes as the head of Dilby
Developments, a profitable
business unit within Dilby
Construction.
brother in the family. He works
mainly with Annette as the
construction manager for Dilby
Developments. His true passion,
though, is running Dilby Outfitters,
a fly-in fishing and hunting camp
that is also under the umbrella of
Dilby & Sons Construction.
never showed an interest in the
construction industry. He and his
partner live in Calgary, where he
teaches high school biology. He
is, however, a shareholder in the
business.
Of all the Dilby children, Annette has always been the most resourceful. Five years ago, she noticed a home that used a hinged gable vent that not only increased circulation in the attic, but also allowed easy access from the outside. She decided to incorporate the feature into her own home designs, but found the supplier unreliable and his product quality inconsistent. She decided to manufacture the vents herself.
At an international homebuilders’ conference in Las Vegas, Annette met three American developers who were interested in her attic vents, and soon after, she began shipping to buyers in Montana, Nebraska and Wisconsin. In her words, “That’s when I realized that although we might like to think Canada and the United States are alike, there are some real differences when it comes to doing business south of the border.”
Kim Bass, a US corporate tax partner at KPMG overseeing the prairie region, works closely with clients like Annette. “If you’re thinking of entering the US market, even before you make your first dollar, you should talk to a specialist in US tax laws,” she advises. “It’s not a matter of how much business you do down there, although in some cases there can be thresholds. What’s more important for someone like Annette is her business needs and goals.”
Since Annette is determined to expand her American market, Bass recommends establishing a US subsidiary. That subsidiary would legally be incorporated in the US but would not necessarily need a physical office or address in the States. Its main purpose would be to sell to US customers and can also be used as a vehicle to expand into the US by easily hiring US employees. A subsidiary is also cleaner and may help facilitate the resulting compliance requirements.
Even after Annette has established the subsidiary, she should consult regularly with experts in US taxation because of the complexities. For example, in addition to the federal tax regulations, tax laws vary from state to state. The subsidiary would need to comply with each state’s regulations to ensure that it stays onside in each jurisdiction it operates in.
Annette isn’t the only Dilby who has American customers. So does her brother Julian. About 80% of his fly-in fishing camp clients came from the United States, and he lost all of them this season because of the covid-19 pandemic. One of his American friends, however, urged Julian to produce a series of 10 weekly instructional webinars on fishing in northern Saskatchewan. Fifteen American fishing enthusiasts signed up, at a cost of US$300 each. Again, Bass emphasizes the importance of consulting with US tax advisors. They can advise on the proper sourcing and taxation of Julian’s earned revenue and, if necessary, the ideal structure for his US operations.
But what about the patriarch of the family, John, and his wife, Mary Dilby? Now in semi-retirement, John and Mary have been spending four months every winter at their condo in Palm Springs. But this winter, because of their health and insurance issues, as well as the uncertainty of US-Canada border restrictions in the coming months, they decided to stay home in Saskatoon. Mary posted their decision on Facebook, and soon after that their winter resort neighbour from Idaho asked if the Dilbys would be willing to rent their unit to a retired couple from Boise. Mary and John were happy to do so. Surely, they don’t have to worry about the IRS!
“I’m afraid that they, too, will have to file with the IRS and pay income tax on their US income,” says Bass. “When you rent a property in the United States, the activity is considered a trade or business and would be subject to taxation. It doesn’t matter if you’re American or Canadian.”
Even if you have the best of intentions, federal and state tax laws can be complicated – and very punitive. It could be that in some years Annette’s subsidiary wouldn’t owe any tax, but failure to file certain forms that may accompany the tax return could still result in a fine of up to US$25,000. The IRS can also seize any assets you own in the US. “That’s why it’s just good business to have a US tax advisor on your side, to make sure you and your business keep up with tax laws that are constantly changing,” concludes Bass. “As Annette says, we might like to think that the US and Canada are very much alike, but that’s a misconception when it comes to taxation. Making assumptions can be very costly.”
All names, characters, and incidents portrayed in this article are fictitious. No identification with actual persons (living or deceased), businesses, places, buildings, and products is intended or should be inferred.
First published in the December 2020 edition of The Business Advisor.
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]]>The post Reflections on a Difficult Year appeared first on The Business Advisor.
]]>“I’ve learned that we’re pretty resilient. This year’s pandemic is severe and it will cause us to adapt.
“Looking back in time, our travel industry is no stranger to disruptions. We’ve lived through hurricanes, terror attacks, and a financial crisis and we’ve always managed to survive. Every time, we put new policies in place and carry on. Before the 9-11 terror attack, you’d just walk through airline security. Now you can’t even have liquids or gels over 100 ml.
“The industry will adapt to the pandemic but so will people in their daily lives. Airlines are installing high-efficiency air filters and using disinfecting fog. Passengers want safety. People are still going to wear masks after the pandemic and not just on planes. Our normal as we knew it is not there anymore. When you look at Asia, everyone has worn masks for years. They are concerned with germs and smog, but the point is that it was for protection. Safety has become a part of daily life.”
Barbara Crowe, CTC
President of Ixtapa Travel
“We started the first three months of 2020 up about 15% in sales. Then covid- 19 hit. We were aggressive in leaning our business down and laid off quite a few staff. I had a hunch this was a long-term problem. We were busy until the first week of May with cars booked in before the shutdown. But people were driving less, so they were in fewer accidents. We had very little work from early May until early September, when we started a slow recovery and began to bring staff back again.
“It was the first time I’ve laid guys off in nearly 30 years. Even when we had a fire and shut down, I paid my staff for three months. We would have lost a lot of money if I hadn’t done what I did. Our business has been affected greatly.
“What did I learn from this? Follow your gut. It’s right 99% of the time.”
Dale Huber,
Owner of Collision Plus Autobody Ltd.
“We are a business incubator that supports around 40 startups. These startups saw their revenue disappear overnight. Startups are the most vulnerable because their coffers are not as large as other established businesses. Most were in extreme panic mode. They are heavily dependent on a steady stream of cash flow. Most of the businesses required rent relief. People’s livelihoods were at risk. There were some tears. Our entrepreneurs had some real decisions to make. Should they stay the course, get creative, or throw in the towel?”
“It boils down to the entrepreneur. Most of them accepted the realities of the pandemic, and what lied ahead. They didn’t dwell on the uncertainty of the pandemic, and adapted and dealt with it the best they could. They got creative in different methods of cutting costs, or making a dollar. They took advantage of government assistance, but were not completely dependent on it. They were nimble and adaptable. These entrepreneurs have what it takes, and are likely to survive future hardships.”
Depesh K. Parmar, MBA
Executive Director of Ideas Inc.
First published in the December 2020 edition of The Business Advisor.
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]]>The post Learning Together: Clients Come First at Wild Spirit Education appeared first on The Business Advisor.
]]>Photos by Karee Davidson/Concepts Photography & Design
After a decade of teaching, Christa Folster saw a need for a different education experience, both personally for her children and for other families. Folster had some business experience owning a Kindermusik franchise, but starting a private school was a whole different adventure. In 2012, Monkey Adventures started with preschool and kindergarten and evolved into Wild Spirit Education, an independent school governed by the Province of Saskatchewan.
The school follows the Montessori educational philosophy and offers preschool to Grade 9, with plans to expand to Grade 12. From Folster and just one other employee in the beginning, the business has grown to 10 employees. Folster describes Wild Spirit as “like the modern-day version of the one-room schoolhouse,” which is by design.
Working with kids has always been Folster’s passion and she wanted to make sure she was doing something she loved for the rest of her life. Her natural love of learning was an advantage for a new business owner. Folster intentionally does not have a formal business plan because she does not want to limit herself or the business. She shares a quote from Carol Black’s film Schooling the World that describes her philosophy: “It can’t be classified under one philosophy. School should be constantly changing and evolving based on the population’s needs.” Folster follows what the children are looking for and what they want. Her business is educating children, but the way in which her business continues to grow from a “client-centric” approach provides interesting insights for any business owner.
What influence do the children have on the way you deliver your services?
We provide a holistic environment where there’s lots of hands-on learning and the kids are taking responsibility for their education. When we’re creating classroom rules, different traditions, or special events, the kids always have a say in it. We have classroom meetings if there’s ever an issue or a situation that arises and we go to the kids first. They will take more ownership over their education if they feel like they have a voice in it. We teach them how to do that in a respectful manner and in a team environment. The teacher isn’t leading the classroom, she’s part of the classroom.
We’re all learning together. That’s also why we have multi-age classrooms – the older kids mentor the younger ones. They take that responsibility very seriously because they want to be good role models. Something that simple cuts down on things like bullying and discrimination. By the time kids finish Grade 12, we have no idea what the workforce is going to look like so we need to prepare them, and that includes being able to interact with different people. When we get out into the workforce, we are not all working with people that are all the same age.
What was the need you saw that motivated you to start your business?
I have two young children who are very high-energy and want to be moving all the time. I heard those struggles from a lot of parents. I wanted to provide an educational experience that could help kids to burn energy and become more focused about learning. I completed my Forest and Nature School practitioner training and I’ve incorporated the use of outdoor spaces and nature into the curriculum – 98% of the learning is outside, year-round. The fresh air helps their focus and attention span to grow. The children feel more successful because they’re able to burn that energy.
I also felt that with [standard] class sizes, children’s individual needs were not being met. Their needs are becoming more complex as we get into mental health, online learning, and bullying and all the things that are involved in a student’s life when you’re trying to teach. Teachers don’t have time to get to every student and kids are falling through the cracks, whether they are needing extra support or if they’re excelling, it’s still the same. We need a revolution in how we view the educational system and how it’s being presented and used.
As for the pandemic experience, Wild Spirit was reopening the same as every other restaurant, retail store, and small business and we needed to keep everyone healthy and safe.
What has been one of your biggest challenges?
Up until the covid-19 experience, adding elementary was a big step. I had to write curriculum for grades 1 to 9 and that was a lot of research. The Wild Spirit curriculum meets all the outcomes set out by the provincial curriculum, as well as incorporating the Montessori philosophies and the Forest and Nature School concepts into our learning. That was a huge challenge and milestone to create those curriculums.
As for the pandemic experience, we were shut down the same as the rest of the schools and had to follow the same rules. However, Wild Spirit was reopening the same as every other restaurant, retail store, and small business and we needed to keep everyone healthy and safe. On the positive side as a business owner, I have a say on how everything is implemented in our school, but the downside is the responsibility falls 100% on me. It was extremely stressful that in all this time of uncertainty, every decision I made was for the health and wellbeing of our kids and our families.
What does your day look like now?
I haven’t been the lead teacher in the classroom for a few years now, but that was one of my goals starting Wild Spirit. I wanted to bring in staff who were eager to learn, grow, be passionate about their teaching, and creative in finding different methods to guide the children. I spend more time teaching the teachers and helping to create their classrooms and follow Wild Spirits philosophies. I love the children dearly and I make sure I spend a lot of time with them. I know every single child here, their personalities, what they like, who their parents are. That’s always going to be very important to me – to build those relationships with the kids – but it also helps me to better support my teachers if I know what kind of children are in their classrooms and the dynamics.
What advice would you give other small business owners in this uncertain time?
Somebody told me this years ago: “If it were easy, everybody would be doing it.” It has not been easy, but it’s worth it. There’s absolutely nothing like the rewards of owning your own business. Those feelings of accomplishment and pride and just taking ownership over where you want your life to go. Building Wild Spirit is as much about building my career and what I wanted to do in my life as it is about building everybody else’s. I’m still growing and learning, but I get to have a choice in what I’m learning and how I’m learning it, and I am so grateful to have that luxury which is a benefit of working for yourself.
First published in the December 2020 edition of The Business Advisor.
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]]>Careful planning can mitigate the effects of the 21-year deemed disposition.
The post Family Trusts: What’s Your 21-year Plan? appeared first on The Business Advisor.
]]>Careful planning may mitigate the effects of the 21-year deemed disposition.
By Sean Rheubottom
Suppose that a number of years ago you implemented a “freeze” in which you exchanged your corporation’s common or “growth” shares for fixed-value freeze shares, and your family trust subscribed for new growth shares. One of the more exciting benefits was splitting dividend income with lower-taxed family members.
These days it’s difficult – though not impossible – to split dividend income because of the new tax on split income (TOSI) rules.
But your freeze may still be working for you in other ways. Another main benefit is the deferral, and possibly splitting, of taxable capital gains. After you froze, further growth in the value of your business accrued to the trust rather than to you. If you sell the business (or in the event of your death), inherent capital gains in the trust’s shares will not land on your personal tax return.
If a share sale happens, capital gains distributed by the trust may qualify for the $883,384 capital gains exemption (CGE) that applies to qualified small business corporation (QSBC) shares. The CGE is indexed annually until it reaches $1,000,000. Complex tax rules must be satisfied.
The TOSI rules do not apply to taxable gains from QSBC shares. Splitting such taxable gains with family may be possible, even where the CGE is not used. Proper consideration of trust tax reporting and attribution rules is critical. Note that each beneficiary of your trust has their own $883,384 CGE.
Deemed disposition every 21 years
Tax rules state that on every 21st anniversary (“D-day”) of your family trust, the trust is deemed to realize the inherent capital gains in its shares, preventing indefinite deferral. However, there are some things you can do to side-step D-day and defer the tax, or mitigate any tax that does occur.
Planning for D-day
Start planning at least a few years in advance of D-day. Some tax strategies (for example, qualifying for the CGE) may take at least two years to work.
You must review your trust agreement from tax and legal perspectives. For example, some plans may involve transferring shares to a corporation. Does your trust authorize such reorganizations or perhaps even provide that a newly created corporation is a beneficiary? Does it allow a beneficiary to be added? Would the operation of trust law or a court application allow a variation of the trust? Would such changes result in a taxable disposition? Adding a beneficiary may result in certain beneficiaries being deemed to have sold a part of their interests in the trust at fair market value, resulting in capital gains.
You must also ensure that your proposed plan is consistent with the trustees’ obligations to the beneficiaries.
Trust-to-trust transfers don’t work
Tax rules provide that if a trust transfers its assets to another trust, the second trust has to use the first trust’s 21-year clock. There is no reset.
Reduce value and let D-day pass
You could simply let D-day pass, allowing the trust to realize the capital gains. Before that, you could try to reduce the shares’ value by paying dividends, accessing any refundable or capital dividend accounts.
Your trust terms might allow deemed, CGE-sheltered taxable gains to be allocated to beneficiaries, although practically speaking, this might be difficult. Something similar may be possible under the “rollout” described below.
Finally, tax rules allow a trust to pay any “21-year tax” in instalments over 10 years, with security and interest.
Rollout prior to D-Day
The main idea with most 21-year planning is to move shares out of the trust before D-day. Tax rules allow shares to “roll out” to Canadian resident beneficiaries without triggering gains, unless desired. The gains may be deferred until the shares are actually sold.
However, if a certain attribution rule applies because of, among other things, a potential reversion of trust property to someone the trust received it from, the rollout will generally not be allowed.
If you’re a beneficiary, the trust can give shares back to you, but to the extent that this is done, your freeze is undone.
Children’s planning issues
Before any transfer of shares to your children,
- Have them plan their own structures, including possible use of holding corporations and trusts;
- Have them sign a shareholder agreement restricting transfers of their shares; and
- Encourage them to enter into family property agreements with spouses.
Buy some time with a second freeze
Let’s say you’re 10 years out from the date you froze. The value of your business has since grown considerably. That growth is contained in the shares held by your trust. Now, think about giving that value outright to your children some time in advance of your D-day. Are you feeling nervous? Concerned about maintaining some control?
It should be possible to freeze the shares held in your family trust (FT1), even if its D-day is several years away, by exchanging them for fixed-value preferred shares. Next, you could issue new common shares to a new family trust (FT2). The inherent gain in FT1 is capped, limiting the amount you have to distribute before D-day arrives. Future growth accrues to FT2, whose D-day is 21 years from now. This is not a trust-to-trust transfer because the corporation issues new shares to FT2.
Rollout with control
There are variations of “rollout” plans that seek to maintain control.
Voting control
For example, it should be possible to ensure that beneficiaries receive non-voting shares so that they get the value, but no control. You or the trust may be able to retain voting shares with low value.
Distribute non-retractable shares
You could consider freezing the value of the trust’s shares shortly before distributing them to beneficiaries, just like a second freeze. A problem is that for technical reasons freeze shares must be “retractable,” meaning the beneficiaries would have the right to demand payment in full from the corporation to completely liquidate the shares.
A possible solution is to transfer the preferred shares to a holding corporation in exchange for non-voting common shares of the holding corporation, and then distribute the non-voting common shares to the beneficiaries. The beneficiaries would get the value but no right to require a repurchase of their shares.
Caution
Be cautious about any plan under which the value rolled out to beneficiaries can be shifted back to you using share attributes. The CRA recently imposed a punitive reassessment on such a plan.
What doesn’t work
It may seem possible to distribute the trust’s shares to a beneficiary corporation, the shares of which are owned by a new trust with a fresh 21-year clock. However, the CRA says that while this is technically not a trust-to-trust transfer, the CRA will seek to disallow it under general anti-avoidance rules.
Finally, understand that 21-year planning requires specialized advice as well as teamwork among your tax, legal and financial advisors.
First published in the December 2020 edition of The Business Advisor.
The information in this article is for general information only. Commissions, trailing commissions, management fees, and expenses may all be associated with mutual fund investments. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated. Please read the prospectus and consult your Assante advisor before investing. Assante Capital Management Ltd. is a Member of the Canadian Investor Protection Fund and Investment Industry Regulatory Organization of Canada.
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]]>What does a hard market for insurance mean to your business?
The post Controlling the Cost of Business Insurance appeared first on The Business Advisor.
]]>By Colin Rooke
There is good news and bad news in the insurance industry right now. The bad news is that insurance premiums are going up dramatically in 2021 for all types of insurance. The good news is that you have some control over the extent of the increase.
Fewer options, higher fees
The insurance industry is in a period of drastic change. For over two years now, more insurance claims than ever have been made and those claims are larger than they have ever been. The cost of doing business has drastically increased for insurance companies and they are responding in three ways: increasing premiums, reducing capacity (not insuring as many customers), and excluding coverage (not insuring certain situations).
The result is that businesses will find it harder and harder to get insurance. When they can find an insurance company willing to issue a policy, the premiums will be higher than in the past.
Becoming a desirable customer
Insurance providers used to undercut each other to win a customer’s business. Not anymore. All insurance providers are increasing their rates and trying to accept only the most desirable customers.
A game of musical chairs is being played and someone is going to be left standing. Who will be excluded? Customers with a history of claims will find it hard to get insurance. When insurance companies fought for new business by dropping prices, some customers would make a claim and then leave their insurance company the next year to seek out better rates. Customers with a history of switching back and forth between providers might no longer get coverage. If they do, they likely will pay a higher premium than they would if they stayed with their current provider.
Insurers now want clients that are claim-free for 5 years, and the trend is moving toward a claim-free period of 10 years. They might settle for a client that has been without a claim for 3 years, but only if they see evidence that the client has lowered their risk of a loss.
Three examples
Directors and officers liability insurance (D&O) is one type of insurance for which changes are coming fast. Any organization with an external board of directors can expect to see roughly a 30% premium increase for D&O insurance, even if the organization is claim-free. There might be requirements such as a $100,000 self-insured retention clause that eliminates the possibility of your company making smaller claims. These rates will be unaffordable for many organizations and some won’t be able to secure insurance at all.
In some cases, the business will be required to submit more information than in the past. Manufacturing companies that wish to purchase property and casualty insurance should expect to submit their safety manual to the insurer. The insurance company will critique it and may require the applicant to explain certain policies. The insurer wants to know how the applicant expects these policies to prevent a safety incident.
Cybersecurity risk is top of mind for many clients because it is relatively new. If a breach occurs and information is stolen, most companies are concerned primarily with their reputation. That’s why businesses hesitate to report these incidents. As of 2018, however, all data breaches must be reported to the Privacy Commissioner of Canada, an ombudsman that reports to parliament on violations of the Privacy Act. Businesses must provide information on the breach, such as what they did to prevent the attack, what they lost, the number of files affected, the sensitivity of those files, whether they had security in place, and whether they notified other companies affected by the incident.
The Privacy Commissioner has the power to impose fines of up to $250,000. Fines are made public so we can see who has had a breach. The Privacy Commissioner dictates what else a business must do to remedy the situation, such as informing clients and suppliers. The business may also have to support those affected in ways such as paying for a year of credit monitoring or making a 24-hour help desk available to guide them as they address the consequences of the breach.
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Podcast – Let’s Talk about Hard Markets
In insurance, the industry goes through hard markets. In the two parts of this podcast, Colin Rooke of Butler Byers explains what a hard market is, how it affects the capacity of the insurance industry, and what hard markets mean to businesses.
Tune in to Part 1 and Part 2 of the podcast Let’s Talk about Hard Markets by Colin Rooke.
As a precaution, companies take security measures such as backing up data regularly. This might prevent the need to pay if you have a ransomware attack, but your company’s information would still compromised, and the incident must be reported. The solution is to avoid a loss in the first place. A well-prepared company will take steps such as having adequate security software in place and training staff to avoid opening suspicious or unusual emails or clicking dubious links.
Risk prevention
An insurance company will use a claim-free period as a starting point to decide whether it will accept you as a customer, but it needs to make sure your firm’s lack of claims is not simply luck. It needs proof. A risk management plan used to be a benefit when applying for insurance. Today, it is a necessity, and you must show you are executing the plan.
Your business needs a detailed risk management plan and evidence that you have acted on that plan to implement it. A risk management plan involves identifying and quantifying risks and then organizing and prioritizing them. The key is to show you have legitimately taken steps to reduce your company’s risk of a claim. An informed insurance broker can help you with this process.
Changes in the insurance market have significant implications for how entrepreneurs run their companies. Insurance can no longer be a crutch for mismanaged operations.
The positive side of the situation is that you have influence on the premiums you pay. The savings that materialize with a lower premium are directly related to the work you put in.
First published in the December 2020 edition of The Business Advisor.
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]]>Options to retain your top employees.
The post Sharing the Wealth: Employee Ownership Plans to Motivate and Empower Your Key People appeared first on The Business Advisor.
]]>By Jeff Henkelman
As a business owner, you understand the challenges that competitors in your industry can bring every day. But competition on price, features, or your service offerings aside, one thing competitors may be doing is looking to poach your key employees, especially if you’re employing some of the best and brightest in your field. These desirable employees can include your sales force, production team, or key managers.
Losing vital players from your team can be detrimental to your organization, especially at a time of economic uncertainty in the markets. How can you ensure your top people want to stay with you?
Motivating factors may be different for each employee, but in many cases part of the solution revolves around compensation.
Something for a business owner to consider is whether you want to share more of your profits or even some ownership and future growth with your key employees.
You have several options to consider that will achieve the objectives for both the organization and the employees. Ultimately, the basic premise is to allow some or all of your employees to share in the rewards and risks of the business.
We’ll talk about three typical structures in a bit more detail.
Profit sharing plans
A periodic bonus tied to employee performance may be sufficient to achieve the objectives of both the employee and the enterprise. If the employee hits certain targets, they get a cash bonus taxable to them as employment income and deductible to the business.
If you go with a bonus tied to targets, it’s important to make sure the targets are well defined so both you and the employee understand them. And ensure that those targets are aligned with motivating the employee to do what’s good for the whole business as opposed to simply enticing them to do what’s in their own best interests.
Employee share ownership plans
For employees you are confident would make good owners, an employee share ownership plan (ESOP) can be an attractive and effective tool for both motivating and retaining employees.
An ESOP allows employees to acquire an ownership interest in the company. The plan can take a variety of forms – equity shares, share options, stock appreciation rights or a combination of these – but the basic idea is that some or all of the employees share in the risks and rewards of owning the company.
An ESOP allows you to set the terms on the shares available to the key employees, including the timing, number, and percentage of shares you want to make available to them and the price they will pay for the shares.
You will need to consider what happens if an employee passes away, quits, is fired, becomes disabled, etc. The terms covering most of these issues will be found in the ESOP agreement along with the unanimous shareholder agreement.
Your key employees will benefit from an ESOP because it will provide them with a direct link to the benefits of being an owner, including sharing in the annual profits through growth in the equity of the business as well as in the increase in the share value.
If the plan is set up correctly, the employees will not be taxed until they actually dispose of the shares they receive under the plan.
There are also other plans that do not involve direct ownership but do allow key employees to effectively benefit from the growth of the business. These are often known as phantom stock option plans.
Share freeze
Another way to include employees in the ownership of the business is to execute a freeze of your business. This procedure is tax-free for you as the owner: you lock the value of your common growth shares into fixed-value preferred shares (they will not grow in value).
You can then issue new common growth shares for $1 per share in any percentage you want to yourself as the principal owner, as well as to your key employees. At this stage, the new common shareholders (including the employees) are participating only in the future growth of the company.
Be aware that some of the benefit of share ownership that comes from feeling like an owner by investing in a business may be muted if the employees do not invest a meaningful amount of their own funds for the shares. You, as the owner, must balance this issue knowing many key employees may not have access to capital to invest. You need to ask yourself if it is more important to retain the employee or for them to pay fair value for their shares.
For many, the answer lies somewhere in between. If you’re concerned a key employee may not feel like an owner because they haven’t actually paid for any of their shares, you can always have them invest a smaller percentage in the enterprise so they have skin in the game.
As with an ESOP, a significant benefit of the freeze option is that the employee now gets immediate ownership and will be able to see the fruits of their labour – not only in the annual profits of the business, but also in the appreciation in the value of their shares.
One of the keys to ensuring a successful implementation of a freeze is to have a clear dialogue with the key employees so they understand what they are getting as a result of the freeze. You also need to make sure you have a robust unanimous shareholder agreement in place before the execution of the freeze: all new shareholders must agree to it before being allowed to acquire shares of the business. Essentially, you dictate the terms of the agreement that will govern all new shareholders.
Conclusion
Before venturing down the path of employee profit-sharing, it’s important to do your research and ensure all parties understand the proposed plan and how it will affect them directly. You also need to ensure you’re attracting and retaining the right people; some employees may be motivated only by money and may not make great owners. For other employees, the idea of being an owner may drive them to act like one, as they can now directly see the benefit of their efforts in the bottom line of the enterprise.
First published in the December 2020 edition of The Business Advisor.
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