Gaston Fournier
Manager | M.A., CHRP | Management consulting

The acquisition of a farm business requires a significant time investment. This is why transferring a farm must be well planned and carried out progressively.

More than 7,500 active young farmers in Quebec and recent studies show that the young agricultural successors are better educated. More than 80% have a post-secondary diploma.

Being optimistic is great, but a successful generational transfer, whether of a family farm or selling to an unrelated third party, will take at least five years in the planning and must be carried out gradually.

To guide you towards success, our team of experts proposes a seven-step business transfer.

1. Drafting a portrait of the situation

The level of preparation for the transfer and successor is of the utmost importance. Sometimes during this step owners have a hard time dealing with the idea of selling their business. Accordingly, an analysis of the different options available to transferors and transferees, including the timetable, will and testament, list of partners involved in the transfer and succession planning, can provide them with strategic support in this process.

At this step, experts such as tax specialists, legal advisors, industrial psychologists and management and asset management consultants will determine the coaching needs.

2. Mobilizing the strategic players

A “project manager” should then be appointed who will coordinate and mobilize the multidisciplinary team of specialists involved based on the diversity of the transfer issues (tax, strategic, human, legal, etc.).

The commitment of key resource people is a key factor in the success of the transfer, but the significance of employees, clients or suppliers should not be forgotten. A clear communication plan will ensure a smooth transition.

3. Analyzing financial needs and financial capabilities

The next step is to analyze the different transfer scenarios available to transferors and to consider the various possible financing options for the transferee. This is where the transferor’s active role within the business will be assessed (progressive withdrawal, mentoring, cohabitation, etc.). The transferor’s post-transfer objectives and financial needs will also be defined.

As for the transferor, a financial plan considering the main current and future priorities will be developed taking into account various options such as loans, lease-purchase, subsidies, succession funding and programs, etc.

4. Thinking strategically

During this step, you need to think about the future of your business and the successors’ needs. A strategic plan will help determine your business’s objectives and the means for attaining them.

Furthermore, you need to establish the business’s market value and determine the governance, which includes the board of directors, management committee, transferee’s mentoring plan, etc.

5. Analyzing and understanding the tax aspects of the transaction

In a business transfer situation, it is imperative to analyze certain tax aspects such as:

  • The business’s value;
  • Possible transfer methods;
  • Shareholders’ agreement;
  • Insurance coverage;
  • Estate and will planning.

Based on the transfer method chosen, experts will be able to guide you to minimize the tax expenses.

6. Searching for financing

Depending on the stakeholders’ objectives, this is when financing strategies are explored, that is to say, choosing the payment method (down payments, instalment payments, share purchase program, dividend payment, financing from the transferee, etc.).

Consultants can also help you with the planning and negotiation of your financing based on the transferee’s business plan. Key elements such as the successor’s determination, financial assumptions and the calculation of acceptable ratios will then be assessed.

7. Carrying out the transfer

After implementing the transfer scenario selected and obtaining the financing, the transferees will have to set up mechanisms that will help ensure the business’s continuation as a going concern and get the transfer started. At this step, they will see to:

  • implementing the transition structure;
  • sharing the responsibilities;
  •  drafting the successors’ development plan;
  • adapting the management style.

Remember: a successful transfer relies on a multidisciplinary team to support you and a long-term plan.

17 Oct 2018  |  Written by :

Mr. Frounier is a manager at Raymond Chabot Grant Thornton. He is your expert in human resources...

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Eric Dufour
Vice-President, Partner | FCPA, FCA | Management consulting

Do you own an SME? One of your greatest accomplishments, ensuring your business’s continuity, cannot be taken lightly. Join the ranks of those who plan well in advance to make sure they keep their key employees. Succession is not a destination, it’s a journey that warrants the support of experienced experts. Take advantage of our approach.

02 Oct 2018  |  Written by :

Éric Dufour is a vice-president at Raymond Chabot Grant Thornton. He is your expert in management...

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Clara Demers
Senior Advisor | Management consulting

Over 90% of Quebec SMEs are family businesses. To successfully transfer the business to the next generation you need to follow a comprehensive, disciplined and well-thought-out process that involves a key human component. Take advantage of our unique, integrated business transfer approach.

02 Oct 2018  |  Written by :

Clara Demers is your expert in management consulting at Raymond Chabot Grant Thornton. Contact her...

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Event promoters, are you familiar with Regulation 105? This federal tax rule applies to contracts with an international artist in Canada.

Cultural events and festivals in Quebec include Canadian and international artists in order to present a diverse and competitive program. From a contractual stand point, signing a Canadian or international artist is essentially the same and involves negotiating the following: fees, equipment, accommodations, transportation, meals, etc. However, there is one difference for an international artist—the event promoter’s tax liability.

International artist’s fee instalments

A contract between an event promoter and an international artist to provide services in Canada for fees is covered by federal tax Regulation 105. Under this Regulation, the payer (event promoter) is required to withhold and remit an instalment equal to 15% of the fees paid to the non-resident (international artist) to the Canada Revenue Agency within a prescribed deadline. Furthermore, if the service is provided in Quebec, an additional amount of 9% must be withheld. To recover some or all of the withholding, the non-resident is required to file an income tax return in Canada.

This Regulation is simple to apply, however, failure to do so could cause problems for the payer, who could be liable for a penalty of 10% of the amounts to be remitted.

Streamlined procedure: prevention is better

Fortunately, the tax rules provide for relief mechanisms (waiver application) and a streamlined procedure for artists. It is to the benefit of any organization, from both an operational and financial perspective, to ensure proactive management of contracts that could be subject to Regulation 105. This simply requires that the application of Regulation 105 be determined at the time of signing a contract with a non-resident, making and remitting any withholding required or filing a waiver application.

Over the long term, failure to comply with Regulation 105 could prove to be expensive and time consuming for an organization’s directors. Whether they are making a voluntary disclosure or undergoing a tax audit, the directors will need to spend considerable time on this matter. Financially, these can be very costly situations. For example, it may be necessary to finance the unremitted payments (such as taxes, penalties or interest), depriving the organization of some of its operating budget.

Don’t hesitate to contact our experts to obtain good advice.