Updated on June 30, 2022

Financing is a key issue in a business succession project and can make the difference between a successful transition or not.

There are several points for the transferor to consider:

• Will the asking price ensure the business’s long-term longevity?
• Will the transferor receive sufficient funds for retirement?
• Is the transferee’s cash outlay sufficient?
• Will the transferor have to invest in the financing structure to ensure the transaction’s success?

Balance of sale price

Generally, the transferee’s outlay represents a small portion of the succession plan financing structure (less than 20%) and usually serves to maintain a balanced financial structure. When the overall transaction value is low, this may be sufficient. However, if the value is in the hundreds of thousands, such a low percentage could prove to be a significant obstacle.

The balance of sale price, i.e. the transferor’s financing, then becomes the best solution to complete the financing structure. Often misunderstood, the balance of sale provides flexibility in the financing structure and a means for the transferor to recover the full value of the business during the first years following the transfer.

The transferees’ results must be as good as those of their predecessors, given the high debt level. Flexibility is an undeniable asset in ensuring a successful business transfer. Sound strategic planning that provides for some growth will make it easier to bear the financing burden.

The right choice

In a succession situation, the transferee’s management skills are a major consideration when obtaining financing. For this reason, a gradual transfer is the preferred option. It allows the transferees to gradually gain management experience and confidence and reassures the lenders about the business’s operations and management. Lastly, it provides the transferees with a gradual participation in the business’s future returns and maintains the transferor’s capital during the transition.

Feasibility of the succession plan

Generally, it can take from four to ten years for transferors to recover the full value of their business, depending on:

• The industry;
• The value of available security;
• The business’s historical and future cash flows;
• The transferee’s financial capacity;
• The transferee’s competencies and the soundness of their succession plan.

A business transfer diagnostic can be a useful tool to shed light on these factors and confirm the succession plan’s feasibility for both parties.

There is a wide range of possible financing scenarios, which is why it’s crucial to talk with the parties to determine their expectations and propose the best financing structure in accordance with their needs. Contact our team of experts. They will support you during this important stage in the life of your company.

Updated on May 8, 2023

Costing improves profitability and is therefore of paramount importance for any business.

Companies are constantly evolving and will need to arm themselves better than ever to stay the course and consolidate their operations. Managers must have all the information they need to make informed decisions and ensure the company’s financial performance.

What is costing?

By definition, costing is the sum of all expenses needed for producing a good and finalizing a service. There are several advantages to knowing and controlling the cost of your services, such as:

• Determining the sales price of services;
• Making informed decisions about contracts (because in negotiations with the client, the manager is better able to understand the available margins);
• Recognizing the difference between profitable and non-profitable services.

In many companies, costing is a neglected management tool, either because of lack of time or lack of knowledge.

As a result, many managers navigate rough waters and cannot rely on costing in the many strategic decisions they must make.

Here are some points indicating that you would need to update or review your costs:

• Your costs were last updated more than a year ago;
• Significant changes were made within your business;
• Your range of services has increased and you don’t know how to price your new services;
• You’re not sure you included all of the relevant costs in your costing;
• Your profit margin does not reflect the estimated profit margin at the time of a tender.

Calculating costs

To evaluate the cost of a service, you have to understand that it is composed of several elements:

• Salaries;
• Subcontracting;
• Operating costs;
• Sales expenses;
• Administration expenses.

When determining your costs, one of the most common pitfalls is to evaluate a resource’s hourly rate based on hours worked rather than taking into account productive hours (vacation and other days off, breaks and training).

For example, if we take an employee with a $25 hourly rate including benefits, this is equivalent to an annual salary with benefits of $52,000 per year. This annual expense, based on the number of productive hours per year ($52,000/1,660 hours in our example), gives us a productive hourly rate of $31.33. It is this rate that should be taken into account when assessing a service contract and not the $25 hourly rate.

When assessing your services, you will be confronted with several traps . One of the most important ones to avoid is postponing the project or waiting for 100% accurate information to determine the cost price. Remember that, like your company, costing is a constantly evolving process.

Contact our experts to assist you in these challenging times.

Updated on May 8, 2023

Have plans to grow your business? Ready to invest? Here’s how to maximize your chances of obtaining financing.

After reviewing your business strategy, you’ve put together a plan that will enable you to achieve your growth objectives. For some it’s acquiring another company, while for others it could be constructing a new building, making Industry 4.0 upgrades or turbocharging their operational capacities. No matter what you’ve got planned, you’ll need a loan from a financial partner.

The application process may seem simple, but there are a few things you need to do first to make sure your application is properly supported and approved.

• Presenting your project
• Assessing all costs
• Getting to grips with numbers
• Evaluating your garantees

How to present your project to your financial partner

Discuss your project with your lender

The first thing you need to do is schedule a call with your financial representative. This simple step can help you gain helpful information on how to effectively prepare the rest of the process. The purpose of the conversation is to discuss the general outline of your growth plan and ask your lender what information they’ll want to see when analyzing your loan application.

Know what information to include in your request

Your lender should give you a list of information you need to provide. The level of detail will depend on your relationship with the lending institution. If you’re a long-term client and interact with your lender several times a year, they will mostly ask about the specifics of your plan. However, if you rarely contact them or you’re a new client, they’ll probably ask for information about your business and its history.

Set up a timeline

Your call with your lender is also a good opportunity to establish a timeline. Once you’ve submitted all the required information, find out how long it will take to complete the remaining steps, which include the financing proposal, final approval and disbursement of the funds.

If you have a well-structured plan and effectively respond to your financial partners’ queries, you’ll gain their trust and cut down processing times.

Small, medium or big project: assessing all costs

Consider all costs

The scope of your project is likely to influence the type of financial arrangement you obtain, and sometimes even the number of lenders involved. Therefore, it’s important to detail all the costs associated with your initiative, including indirect expenses. For example, if you plan to purchase new equipment, think beyond the purchase price. There’s also the cost of transporting and installing the new equipment, disposing of the old equipment and training staff on how to use it.

Plan for contingencies

To prepare for unforeseen events and ensure you don’t run out of funds part-way through the project, you should include a contingency budget. Generally, setting aside 10% of your project costs should give you enough leeway in the event you have to change course.

Getting to grips with numbers

Most of the information requested by your lenders will be financial in nature. That’s why it’s important to have a good grasp of your business numbers. There are two critical aspects that lenders tend to focus on.