Donald Savard
Partner | CPA, CA, CEE | Assurance

Selling your business is a big decision, one that should be well planned, often years in advance. In many situations, it may be to your advantage to maximize its value.

Several internal and external considerations come into play. While it may not be possible to impact external factors (such as the competition or government regulations), the same is not true for internal ones.

To increase your business’s value and maximize its selling price in a potential transaction, we recommend the following.

1. Sales growth

Investors will find a developing business more interesting than one in decline. If you can show sustained sales growth, it’s more likely that a potential buyer will be prepared to pay a higher price.

2. Earnings quality

This is vital. How can you expect someone to be interested in buying a business with astronomical sales and no profits? For a shareholder or business owner, earnings (or cash flows) are the return on invested capital. The higher they are, the greater the value.

3. Human resource stability and quality

A buyer will find an organization with a well-structured work force more attractive (regular employee turnover, well-trained employees, low occupational accident rate, etc.).

4. Brand image

This includes the reputation of the business’s products and services on the market as well as the quality of its marketing process.

5. Contracts

The existence of exclusivity contacts, procurement agreements, advantageous leases, franchises or patents can set the business apart from its competitors, providing added value.

6. Sound financial situation

Is the debt level appropriate? How does its working capital compare to the industry? The better the ratios, in comparison with other industry sector businesses, the better its chances of a higher sale price.

7. Client variety and loyalty

It is generally acknowledged that 20% of clients generate 80% of revenues. While a diversified clientele is important, it’s also important to instill client confidence and encourage loyalty by being attentive to their needs.

8. State and value of tangible assets

Consider the business’s capital assets (land, building, state-of-the-art equipment, etc.).

9. Growth potential

This could be unused production capacity that a potential buyer could use to increase sales and earnings.

10. Market niche

A business in a market with attractive growth perspectives is more appealing to a buyer, it should be innovative and always stay ahead of the competition.

We can help you plan your business’s sale and maximize your sale price. Our firm has experts and contacts in all areas of management, particularly tax, business valuation, human resources and financial advisory.

Don’t hesitate to contact us if you have business valuation questions or requirements.

01 Mar 2018  |  Written by :

Mr. Savard is a partner at RCGT. He is your expert in assurance for the Rivière-du-Loup office....

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Sylvain Moreau
Partner | FCPA, FCGA, Pl. Fin., D. Fisc., TEP | Tax

In preparation for your old age, you regularly put money aside to fund your retirement projects. Here are a few tips for reducing your taxes at retirement and preventing the Tax Man from taking a significant chunk of your savings.

1. Since your personal tax rate is based on your total income, make sure to contribute to your spouse’s RRSP so that your pension fund will be divided between the two of you. Upon retirement, you will have succeeded in splitting your income, which will reduce your tax bill.

2. If your spouse’s pension income is lower than yours, because the RRSP contribution had not been maximized over the years, for example, every year, you can allocate up to half of your own pension income from your RRSP or pension fund, other than government funds. Make sure you do this every year.

3. Ask the Régie des rentes du Québec (RRQ) to share your pension. This way, you will reduce your income and the related taxes.

4. Since all tax-free investment income accumulating under your RRSP will be entirely taxable once it is withdrawn, be sure to hold investments that generate interest through your RRSP.

5. Benefit from the advantageous tax rates of capital gains and dividends by personally holding investments with this kind of income. Upon retirement, you will benefit from a 27% income tax rate applicable to capital gains and 40% for dividends.

Our recommendations

  • With regard to the 2nd tip, remember that public pension plan income (federal Old Age Security and the RRQ) cannot be split with your spouse.
  • If you receive income from your RRSP or private pension fund, you could benefit from a $2,000 pension credit each year that can reduce your taxes. Splitting your pension income will enable your spouse to also benefit from this credit.
  • When you retire, if you continue to receive investment income from non-RRSP investments, you will be able to continue deducting your investment and interest expenses.
  • Since the tax rules change regularly, make sure you review your retirement planning in order to reflect these changes.
  • Get advice from your tax specialist who can suggest strategies tailored to your personal situation.

This article was published in French in Journal de Montréal and Journal de Québec on 2018, February 17. Sylvain Moreau is Tax Partner and columnist for the Argent – Dans vos poches section.

28 Feb 2018  |  Written by :

Sylvain Moreau is a partner at Raymond Chabot Grant Thornton. He is an expert in taxation for the...

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On February 27, 2018, Finance Minister Bill Morneau presented the government’s 2018-2019 federal budget. This tax alert provides a summary of the tax measures proposed in the budget.

As expected, included in this year’s budget is the draft legislation to address the perceived tax advantage enjoyed by business owners when investments are made through their private corporations instead of personally. The government’s concerns around this matter were originally brought forward in the July 18, 2017 consultation paper, Tax Planning Using Private Corporations. Due to significant push-back from the business and tax communities in relation to this specific concept, the government assured effected taxpayers that any legislative response would include grandfathering. As discussed further below, the Budget 2018 proposals in relation to passive income revolve around a grind of the small business deduction based on associated company investment income and a new refundable tax pool concept. Other specific matters addressed in the July 18, 2017 consultation paper, specifically around income splitting, were previously addressed by way of draft legislation issued in December 2017.

There are no additional changes to the corporate tax rates from those previously announced in the fall economic statement for small business corporations. The budget also did not include any changes to the personal tax rates and tax brackets.

Despite speculation over the last couple of years, the government did not increase the capital gains inclusion rate or provide any specific measures related to the Scientific Research and Experimental Development (SRED) program.

The budget, however, did include measures to combat aggressive international tax avoidance (i.e., the use of so called “tracking arrangements” and the use of transactions involving partnerships and trusts to distribute tax-free distributions to non-resident shareholders). The government also indicated that it will continue to work with its international partners to improve international dispute resolution, and to ensure a coherent and consistent response to fight cross-border tax avoidance.

Proposed consultations on tax measures

Consultations on the GST/HST holding corporation rules
The government indicated in its budget that it intends to consult on a Goods and Services Tax/Harmonized Sales Tax (GST/HST) rule, commonly referred to as the “holding corporation rule,” which generally allows a parent corporation to claim input tax credits to recover GST/HST paid in respect of expenses that relate to another corporation. More specifically, where a parent corporation is resident in Canada and is related to a commercial operating corporation (i.e., all or substantially all of the property of the corporation is for consumption, use, or supply in commercial activities) and the parent corporation incurs expenses that can reasonably be regarded as being in relation to shares or indebtedness of the corporation, the expenses are generally deemed to have been incurred in relation to commercial activities of the parent corporation.

The government intends to consult on the limitation of the rule to corporations and the required degree of relationship between the parent corporation and the commercial operating corporation. The government also intends to clarify which expenses of the parent corporation are incurred in relation to shares or indebtedness of a related commercial operating corporation, and therefore qualify for input tax credits under the rule.

Consultation documents and draft legislative proposals regarding these issues are expected to be released for public comment in the near future.

Click here to download the report (PDF)

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

In the context of evolving markets and generational changes, it is vital to establish a competencies development plan to address the resulting challenges.

In many cases, business transferors have an entrepreneurial profile; this does not necessarily correspond to the typical definition of managers. They enjoy being in the thick of things, using a trial and error approach, relying on their business instincts. As a result, they often have an informal, somewhat patriarchal management approach, with few rules, little structure and no management programs.

The transferees, on the other hand, will likely be facing different challenges such as:

  • Market growth,
  • More employees,
  • Specialization and increased demands,
  • Financial and legal controls.

New organizational needs may arise in terms of the structure (official organizational chart), internal operations (management committee, management scorecards and marketing plan) and human resource programs (employee handbook, compensation structure, etc.).

 

Prepare a profile

It’s essential to clearly define the required skills for the management positions while building in some flexibility to share responsibilities. For example, among others, a general manager should have strategic vision, finance skills and the ability to delegate.

Assess competencies

The transferees’ current abilities should then be evaluated using a variety of tools: analysis of their experience, behaviour interviews, psychometric and aptitude tests. A common misconception in many family businesses is that management skills are innate, this must be avoided at all costs. Some transferees may not want a management role, they may prefer to be on the operations side. Properly evaluating their profile will be useful for both them and the business.

Draw up a plan

Lastly, a competency development plan should be drawn up for each transferee filling a key position to ensure that they are able to take on that role efficiently. There are numerous options: training, internal or external coaching, discussion groups, etc. The transferor could serve as a mentor, but this role should be clearly defined. The transferor’s knowledge and experience can then be passed on to the successors and foster a successful transfer.

A business’s activities can be looked at from many perspectives: rational, financial and operational. These are significant management requirements, but the human aspect is just as important, and in a business transfer context, it is most often at the heart of discussions. Psychometric tests and a competency development plan are key to the succession plan discussion and implementation process to ensure a smooth transition.

Contact an expert in your region to find out how Raymond Chabot Grant Thornton can support your business transfer process!

Watch this video (in French) about Le Brise Bise.

26 Feb 2018  |  Written by :

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

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