Preparing to transition your family business
by Angèle Charbonneau, CPA, CA
If you are an entrepreneur and own your own business, at some point you will need to consider when and how you are going to transition the business. Will you transition the family business to your children or other family members? Will you sell the business to a third party?
This decision can be an emotional one. You may have children who are very good in the business and want to continue on, however you may also have children who are interested, but may not have the ability to continue on as you have. Are you in a position where you need to look outside of the family for succession?
When preparing for transition, there are many factors to consider. In order to ensure a smooth transition, preparation should be done well in advance of the anticipated transition date. Some of the important considerations include:
• What can be done to better position the company for sale?
• If you are selling to a third party, you will want to position your company to maximize your selling price. What can you do in advance to maximize your price?
• If you are planning to transition to family, other considerations will come into play. How are you going to ensure that the family member(s) are prepared to take over the business and continue on as successfully as you have?
• Under what form should the sale take place?
• How will the transition be financed?
• Will you continue to be involved?
• What are the expectations relating to transition?
Having your recordkeeping in order is also a very important part of the transition process. Buyers will likely need to obtain financing for the purchase and will therefore need to prepare to go through the due diligence process. The buyer is going to be asked to provide financial information to support their application for financing, therefore you as the seller needs to ensure your financial records are up to date and in good condition.
What form of compensation are you willing to accept on a sale? Most business owners prefer to sell for cash, however a vendor take-back may need to be considered. Consider, well in advance, how the transition will be done to ensure that it is successful. Proper communication with stakeholders and employees is very important to keeping everything under control during the transition period. You want your employees to buy in to the transition and need to plan ahead to ensure that there is a seamless transition for your clients.
Regardless of the form of transfer (i.e. asset or share sale), once you get to the point where you have a buyer and your strategy for sale and transition has been mapped out, a well drafted purchase and sale agreement will ensure that there are no misunderstandings going forward and that each party is clear as to their roles and contractual obligations. Assembling a solid team of trusted financial and legal advisors who handle these matters on a daily basis is an important step towards completing a successful sale. They can help to formulate strategies to find a motivated buyer, evaluate offers received, negotiate agreements and handle reporting requirements and other financial matters after the sale. They can also provide an important independent opinion without the difficult emotional attachment.
The above is only a sample of the matters that need to be considered when preparing to transition your business. Careful and proper planning will help to maximize the value of your business and ease the transition process.
Angèle Charbonneau, CPA, CA is a partner with MNP LLP. MNP provides tailored expertise in tax, accounting and a wide range of business advisory services. Whatever your needs, wherever you want to go, MNP will help you get there.