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.