# How are we doing, please comment (the good and bad)



## AudiS4 (Sep 11, 2013)

Wife and I are 38 years old, son is about to turn 7. I am self employed, wife is a professional who earns a good salary.

Our house is worth about $450K market value, we owe 230K. Mortgage is up for renewal next May. Current rate is 3.95% If we continued current payments we would pay the house off in about 12 years.

We have no other debt, no cars etc. Everything is paid for.

I have a self directed RRSP (couch potato with a little Apple thrown in for fun), worth about 106K and a contribute 2K a month.

Son's RESP is about 20K and we put in a couple hundred a month.

I have a pension plan at work that I no longer actively participate in that has a value around 20K.

My wife has a pension plan at her work she puts in 5% and they match. Currently worth 48K.

I have about 30K doing nothing.

I have a numbered company that owns a commercial building worth about 1.1M About 550K owing on that, I am paying that aggressively, should be paid in full in less than 10 years. This company also has about 30K in it just sitting there in case it is needed.

I own the company that operates in the building that the numbered company owns. It's hard to value that company. If there was a buyer I would be say it is worth between 2 and 5 million, no idea if and when this would ever be sold. I don't' really consider the value of this company in my personal finances. I may just close it down someday, and get whatever I can from selling equipment and the receivables etc. It is very possible there will be no big payoff from the sale of this company at the end of my career.

Wife has a personal RRSP from before her current employer with about 20K in it.

We live within our means and can make our financial commitments easily. 

Any thoughts or comments, would you say we are on track etc. Just not sure what to do differently etc.


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## Jon_Snow (May 20, 2009)

A ball park net worth figure would be helpful for me in providing input. You ask if you are "on track"... on track for what exactly? What are your goals? 

You own a nice car anyway. :biggrin:


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## HaroldCrump (Jun 10, 2009)

My head is spinning with all the numbered companies and cross ownerships.
What is the purpose of this arrangement? Is it tax avoidance?

Regarding the personal accounts, there is too much going on i.e. too many pension & RRSP accounts.
I agree with Jon_Snow's comment to post your goals and timeframes.


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## AudiS4 (Sep 11, 2013)

Net worth is tough because of trying to value the business. It is currently probably about 1M. On paper I guess this business is worth about 800 or 900K at any given time and growing slowly.

We want to be on track to retire comfortably and live an above average life style in retirement, with some travel or a second residence. I would probably work until I am 60 years old, or so, I can't speak to when my wife would retire, possibly before me. We want to fund our son's education pretty much completely.

I also know but don't really think about that eventually when my parents pass I will receive somewhere between say 3 and 500K. This ss just a guess but is probably pretty reasonable.

I guess I want to feel like we are putting enough away.

The second thing that is on my mind is our current house is on the market. I have my eye on another place that is worth about 200K more than our home know. I know we can make the mortgage payments no problem, but we may decrease what we put away for retirement if we make the move. Having said that there is very little action on our home, so this could easily not happen. If we moved the new place would be the place we stay in until our son is out on his own, then we would re-evaluate our housing needs.

We do own the car, my wife got a spending ticket on the weekend for going 150 in a 50 zone, that sucked a bit.


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## AudiS4 (Sep 11, 2013)

It isn't really that complicated.

I own and run a business. I own within a numbered company (with a mortgage) the building that my business operates out of. This is done just so the building is not a risk should the worst happen with the company that I operate. The company I operate can't lose the building because it doesn't own the building, I think this is pretty common. The operating company pays the numbered company rent monthly that covers the expenses for the building.

My wife and I both had RRSP accounts with the bank from before we were married etc. I took control of mine and started doing the self directed thing. We will probably do the same thing with my wife's account. Her pension started when she started with her current employer a few years ago. 

The RESP is plan and typical.

The money I have in a pension is not really accessible. I need to die, stop working for myself or retire to access that money. So I think it just has to stay where it is and grow until I retire.

I'd love for things to be simpler and easier to evaluate, but I don't know if there is really much I can do on that front.

So I have a business, a commercial building, a house, and some retirements savings in about 4 accounts.


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## PrairieGal (Apr 2, 2011)

150 in a 50 zone?!? I really hope that is a typo!


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## RBull (Jan 20, 2013)

^ I agree. Income numbers would also be needed. 

The post seemed commonplace until I got to the part about the commercial building and the business valuation. S4, I'm scratching my head on that one. 

There are of course many ways to value a company but the the numbers you're putting out there indicate a large cash flow, or perhaps these are other assets. In that context your savings seem quite small but perhaps the rent/equity in the numbered co. is offsetting that. I'm sure you've had professional accounting advice for your companies, which appear to be the most important part of your finances. I would be tempted to sell the business if you're unsure it will have much/any future value, and just collect the rent.


EDIT: I was typing this before the other responses!

S4, now I'm really confused- business worth 8-900K or is it 5 million?


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## AudiS4 (Sep 11, 2013)

150 in a 100 zone.

The company has valuable equipment. If I were to sell if and had I buyer it would be in the low millions. If I don't sell it and just wind it down, it would be the 8-900K value, collecting receivables and selling the equipment piece by piece.. It is the kind of business that really needs me to have value. It isn't a really small company, a dozen or so employees, been in business for 35 years. We do under 5million a year in work.


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## AudiS4 (Sep 11, 2013)

Assume my wife and I each make 100K/year.

The value of the commercial building is definitely a big part of our retirement planning.


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## heyjude (May 16, 2009)

I don't think this situation is too complicated at all. Just a basic corporation leasing a building owned by another corporation, which happens to be controlled by the CEO. The relatively small amount of personal savings reflects the fact that your corporations hold most of the assets you control. The corporations are your retirement plan. Been there, done that.

However, it is difficult to evaluate your financial situation without knowing something about cash flow. Is your company making a profit? How much are you paying yourself, and are you using dividends or salary? Are you making the most of the tax management opportunities the corporation provides, e.g. a PHSP, IPSP, employment of family members who are in a low tax bracket? What is your exit strategy from the business?


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## AudiS4 (Sep 11, 2013)

Yes the company is making money. I draw my salary and that is it, the rest is staying in the business and making the maximum allowable principle payments on the building.

I only have the one young son, and my wife's salary is the same as mine, so I don't see any options there for dividing income.

I plan on working for another 20 years, so I really don't have an exit strategy. I think the options are I just close the doors, my son takes it over, over the least likely option is someone in my industry purchases the company. IN the case I could sell the business and the building or keep the building (which will be paid by then) and collect monthly rent from the building.


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## Jon_Snow (May 20, 2009)

If you are okay working into your 60's, I see very little wrong with your financial picture.


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## heyjude (May 16, 2009)

Thanks. Yes, your son is a bit young, but it won't be long until he is a teenager and then there's bound to be some simple work he could do for the company (and get some useful work experience). I was just thinking ahead. 

If you don't anticipate that the sale of the business will yield a windfall, you need to find a way to tap into the profits sooner, e.g. by issuing dividends in addition to the salary you already take. Are your family members shareholders? If so, consider giving them some dividends. Your son would pay very little tax on a dividend. 

Your corporations hire a professional accountant, I presume? A good accountant should be advising you on these strategies.


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## AudiS4 (Sep 11, 2013)

I have never really considered retiring much earlier than that. It's possible the business could do very well and I could be in a financial situation where I could retire earlier, or the opposite could also happen. I am in construction and forecasting year to year is very tough let alone further into the future.

Looking at it simple if you count the building, home equity and retirement savings you could say we have a 900K and we are 38. I think that is the one line version of where we are and we each make 100K a year. Simple as that really. Once a house is paid for and the building is paid for we would start putting away much more money.


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## AudiS4 (Sep 11, 2013)

Yeap I have an accountant and he thinks the picture is pretty rosy. Comparing this business and my lifestyle to other businesses he thinks we do really well. The business has no debt and makes money, I would say from talking to him that this is not the case for many small businesses. And I think most business owners take out much more money than I do to live on.


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## RBull (Jan 20, 2013)

You appear to be in very good shape, assuming you are very well insured, given what you say about your value to the business. I would also try and figure out how you can transfer this personal business value to a future buyer, to maximize return. Not an uncommon issue with small businesses. You'll also have to figure out what to do with the numbered co cash flow once the mortgage is paid, which I expect would be a significant amount. 

I would get professional accounting/legal advice about all of this to ensure you're doing the right things now and to discuss operating co. exit strategy options and future plans for the commercial building. Review your life and disability insurance and make sure you and your family are well protected.


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## heyjude (May 16, 2009)

RBull said:


> You appear to be in very good shape, assuming you are very well insured, given what you say about your value to the business. I would also try and figure out how you can transfer this personal business value to a future buyer, to maximize return. Not an uncommon issue with small businesses. You'll also have to figure out what to do with the numbered co cash flow once the mortgage is paid, which I expect would be a significant amount.
> 
> I would get professional accounting/legal advice about all of this to ensure you're doing the right things now and to discuss operating co. exit strategy options and future plans for the commercial building. Review your life and disability insurance and make sure you and your family are well protected.


Agreed 100%. Disability insurance is essential for you. 

When you pay off the mortgage on the commercial building, you could consider redirecting that cash flow into the purchase of another commercial building. This would set up a stream of rental income that would be independent of your construction business. This would reduce the risk associated with your primary business and could build additional wealth. And you do have experience with commercial buildings.


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## Ihatetaxes (May 5, 2010)

Looks like you are doing well and we have some similarities. You are not far off where I was at your age, around 6 years ago. I also own a business and commercial real estate that is leased back to my company plus another property with good long term tenant. We worked hard to pay the home mortgage off quickly and it was done at 41 on a house worth $850k or so.

I do have excellent disability insurance and probably too much life insurance (most of it paid by my company and the company is the beneficiary). I pay around $3k/year for the disability but it's a good idea for at least a few more years.

FYI our net worth has grown more than 400% since age 38. This is due to heavy focus on saving and investing, aversion to debt that isnt a good write off, more diversification of income steams, growth of the markets and success of the business. I think with some good planning and help from a good accountant you should be retired well before 60 if that is what you choose and start planning for now. My wife will be retiring in the next year or two mid 40's and I should be pretty much done by 50 although I might keep a finger in the business for something to do a couple of days a week. Exit strategy is coming together as I have a protégé who wants to buy me out.

I'd be happy to discuss all this with you if you want.


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## donald (Apr 18, 2011)

I would structure the business going foward so it does have value "without" you as you say(it likely does have value without you and you might be wrong with that assumption)
I have a smaller business than yourself and my personal situation is different but I have hired and put my efforts into building a small team(in my case subs and employees along with a foreman)
I would never dream of killing the goose that lays the eggs.
I don't know how your clientele is but most contractors have a established base of clients that have been built on urs ago.
You should be able to nearly operate in your pjs if you wanted too or on the golf course.
I can't think of a better investment than hiring out employees at a industry rate way below what it costs you to employ them
I think about future clasflow instead of selling,near impossable to find that kind of return on investments you wont find it on the Tsx.
Most of my business is 80% purchase orders..this is the sceniro I worked hard to achieve
My yield is atleast quadruple than what it would take to get cash flow if sold and one was dealing with a lump sum


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## AudiS4 (Sep 11, 2013)

Ihatetaxes, Maybe a discussion will be in order at some point, I'll send you a pm sometime.

donald, I'd love to get the business to a position where the value remains without my involvement, this is easier said than done. I got into the business 7 or 8 years ago, it took 5 of those years to get to a point where there was confidence from the previous owner and myself in the business being able to continue without the previous owner. At that point I bought him out. Hopefully I will be able to find a person who can do the same and afford to buy me out. It isn't easy to find a person who can handle the stress, the cash flow, the employees, and the business relationships, and wants to put the time and work in to make it go.


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## donald (Apr 18, 2011)

I can fully understand your challenges.
It's hard for me to comment because I don't know what field of construction you are in.
I am just a strong proponent in delegating(you don't need to find one guy to do it all)
Systems and tasks can be broken down and a few key people can mange each segment in your business(with you 'floating' over each 'manager')
This way only a few people report to you and the other employees report to the people you have put in place
Just like a tradition corporate structure I suppose
sales/estimating/accounting/field foreman/safety/pr or whatever and you can always sway on the area you enjoy and are the strongest in the majority of time(if its sales for example)
I only have 6 employees (sales estimator/accounting/field and another sub(field crew) business I hire.
It's hard I know!(building a system/retaining good employees/trust and letting go)
My hope is to grow it some more and work hard in creating the environment where I am still involved but on the sidelines(just seems like you can reap more longer term this way)
I also have a mentor who has around the same size company you have(commercial service contractor)and he is trying to ge me to see the 'light' in how to operate a business from 'afar' if need be.


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