There are multiple reasons for selling a business. For some sellers, age, the approach of retirement, a sudden event such as illness, or simply the desire to do something else, lead them to consider selling their business.

In this context, regardless of the reasons for selling, the process is complex and ideally should be the object of a planned approach. This requires a major investment of time and effort to obtain the best possible price and favour the company’s sustainability.

1. Can I do it alone?

To carry out this process, you must consider several aspects involving specialists, such as business valuators, legal specialists, financiers, tax advisors and specialists in negotiation.

2. What is the value of the business?

Entrepreneurs usually know little about the value of their business. For many of them, the selling price of the business is based on the amount of money they want for their retirement. In this regard, a business valuation should be obtained before engaging in a selling process, so that a good basis for negotiation is established. Not only must the company’s assets be appraised, but its fair market value must be established.

3. What about taxes?

Tax planning related to the transaction is also essential. It needs to be planned methodically, because a shareholder who sells his company’s shares (and not the assets) has the right to a capital gains exemption of up to $800,000, if he meets certain very specific criteria. For entrepreneurs who want to sell their business so they can constitute their retirement fund, this tax benefit becomes especially important.

4. Have you established a communications and marketing strategy?

In the process of selling a business, communication is essential, both with the buyer and with the team in place within the business and the key employees. Is there internal interest, or a risk of losing one or more key employees?

5. Can you control your emotions?

Entrepreneurs often have invested a large part of their lives in the business. They are involved both in human and financial terms. It is therefore completely normal to be emotionally involved when you consider divesting your life’s work.

But there is no place for emotionalism in the process of selling a business. For this reason, support to the seller by a person who has no interest in the business is very beneficial in such transactions.

Just as entrepreneurs are experts in their industry, entrepreneurs involved in a selling process should call on the best resources at their disposal. Ultimately, the wealth he needs to ensure his retirement is in question.

The operating budget is an essential tool for the management of a company. Indeed, it allows, among other things, to address the concerns of the banker, test different scenarios and manage its human and financial resources. However, to be truly effective, it must be prepared methodically and strategically.

Conditions for success

First, the budget should be planned according to the vision, strategic plan and objectives of management. For example, if a Quebec company wants to conquer the rest of Canada’s market, the budget must reflect this ambition and not only include sales expectations in Quebec. Then, the related objectives must be ambitious and stir people into action. Indeed, one might tend to underestimate the budget by saying that they will be able to manage it and to win the banker’s favor. However, a realistic budget demonstrates not only the seriousness of the business, but also the quality of management: the vision of the entrepreneur and his ability to anticipate things and plan and set goals (realistic but ambitious).

Ensuring to communicate the objectives related to the budget is also an important factor for success. Concerning sales, for example, a seller may direct its work according to the objectives. It is also a great way to mobilize the team and empower every person concerning the elements under their control. Finally, for the budget to be a really effective tool, it will be necessary to plan it before the beginning of the year, to be sure to have only one official version and to be sure that it does not present too many details and that it is flexible during the year in the event that an interesting opportunity arises.

Methodology

The usefulness of the budget also lies in the way of conceiving it. A good methodology to establish the budget consists in:

Using projected sales as a basis
In the case of a company that is in its second year of operation, it is possible to rely on sales of the previous year, including the expected growth and inflation. For a start-up company, it is an estimate. In both cases, the estimates may be based on facts such as signed contracts, the volume of potential customers to approach, workforce hiring to come, purchase of equipment, premises, etc.

Preparing the budget as the internal financial statements
Adopting the same structure for the budget as that of the financial statements facilitates the comparison of the data, the measurement of the differences and then, subsequently, the decision making.

Gathering and properly documenting the assumptions
The assumptions are used for explaining the amounts included in the budget. They involve sales and expenses. For each of these aspects, assumptions are made taking into account the different elements.

1. Sales

They allow to track the overall growth of the sales figure. Sales include:

• Projected sales by product or service or territory,
• Business volume by customer.

2. Expenses

They reflect a good knowledge of the cost structure and help plan the resources needed to achieve the projected sales. It is necessary to examine historical data in order to establish them. Expenses include:

• Factory overhead,
• Selling expenses,
• Administrative expenses,
• Financial expenses based on debts,
• Amortization.

In general, the assumptions can be made on a monthly basis to reflect cyclical or seasonal activities, or they can be divided by 12, which is standard practice in the case of a start-up company.

If you are to prepare a budget for your business and want to get advice from a professional, do not hesitate to contact us. Our team will be happy to guide you through the process.

Writing a will is a complex endeavour, and it is essential to understand the tax consequences of certain clauses to avoid unpleasant surprises. For example, does a survivorship clause preclude a tax-free rollover of property or a registered plan as a spousal bequest?

Indefeasible vesting

The rollover of property to a spouse or spousal trust upon a taxpayer’s death is an exception to the rule of deemed disposition at fair market value of any property owned by the taxpayer immediately before death.

To benefit from a transfer, several conditions must be met, including the requirement that the property of the deceased be vested indefeasibly to the spouse, or to an exclusive spousal trust, within 36 months following the death.

When a will contains a classic 30- to 60-day survivorship clause, according to the Canada Revenue Agency (CRA), such a clause does not in itself preclude the rollover of property to the spouse, if the latter survives the testator beyond the period stated in the clause. However, the CRA also specifies that, should the spouse die within the period stated in the survivorship clause, the rollover provided by law does not apply, because the bequest would be retroactively transferred to someone else.

Registered plan bequests

Upon the death of a registered plan annuitant, tax-free vesting occurs by virtue of the premium refund concept.

At the time of death, the annuitant of a registered retirement savings plan (RRSP) or a locked-in retirement account (LIRA) is deemed to have received, immediately before death, an amount in the form of a benefit equal to the fair market value of property included in the plan. This amount should be included in the computation of the deceased taxpayer’s income.

Following the death of the registered plan annuitant, insofar as any plan amount is paid to the surviving spouse, child or grandchild financially dependent on the plan annuitant such payment will then constitute a refund of premiums that is deductible in the computation of the deceased taxpayer’s income. The end result will be tax-free vesting.

As for the taxpayer who receives the amount that qualifies as a premium refund, if the amount is transferred into an RRSP or used to acquire a life annuity for the surviving spouse, child or grandchild, the transfer is tax free, if certain conditions are met.

In the case of a registered retirement income fund (RRIF) or life income fund (LIF), the rules regarding tax-free vesting have the same characteristics of inclusion and deduction for the computation of taxable income as those of an RRSP.
In short, vigilance is a must when writing a will. When there are conditions attached to a bequest of property, it is important to verify whether such condition(s) will have a tax impact. Our will and estate planning specialists can help ensure peace of mind and financial security for both your loved ones and yourself.