- Viable options are available when you know what to look for -
TORONTO, Aug. 11 /CNW/ - A common assumption among family business
owners is that one day they will retire and their children will take
over the company. Who better to understand the pride, commitment,
challenges and needs than those who have lived through its development
and growth? But what happens when the children are not interested in
working in the business?
"Looking outside the family for an exit strategy may not be something
many business owners have seriously considered." said Peter Weinstein, a
chartered business valuator and partner at Stern Cohen Valuations Inc.
"Once the emotion is taken out of the discussion, business owners
realize there are a lot of options available to them."
Stern Cohen Valuations suggest the following advice for owner-managed
businesses that need to look outside the family to plan their succession:
Step 1: Take a critical look at your business.
Identify if there are any issues to address well in advance of a sale.
Key areas to examine are:
The mix of employees to determine how reliant the business is on you
and whether there is enough of an institutional knowledge-base;
The diversification of key customers or suppliers, or the
establishment of long-term agreements to mitigate this risk;
Which non-operational assets, such as real estate or marketable
securities, can be transferred out of the company in the most tax
efficient means possible;
Whether discretionary-related party transactions, such as management
compensation or real estate leases, have been clearly documented; and
The potential value of the business, assessed in a realistic manner.
Step 2: Identify potential purchasers. If family members do not
want to acquire the business, there are two categories of potential
purchasers, employees and third parties not involved in the business.
The case for looking at employees: You know them.
They have knowledge of the business and experience in its operations.
There is the possibility for you, the seller, to stay on in some
capacity and it is often easier to arrange an orderly transition over
The case for looking at a third party: Someone
outside the business will likely pay more and have greater financing
resources. This also allows the seller to walk away from the business
more quickly. There is often less emotion as this is mostly a business
"It is worthwhile to consider both options initially but to decide which
option is best early on," said Weinstein. "It is important to plan ahead
as each option can take a long time."
Step 3: Once potential purchasers have been identified, look
carefully at the deal. This can be done by asking the right
Is the price being discussed reasonable? Analyze the terms of the
transaction, on your own or with a valuation expert, to make sure it
is acceptable taking into account the risks and opportunities of the
Will this be a share or asset sale? Have opportunities for tax
planning been considered including the opportunity for the $750,000
capital gains exemption on a share sale?
Will payments be made immediately or over time, and will there be an
Will you be required to remain at the company for a certain period of
time and how will you be compensated?
If your children do not want to work in the business, there are still
viable options that may prove to be equally rewarding.
Stern Cohen LLP was founded in 1963 and is now among the top 50
accounting firms in Canada serving clients in the Greater Toronto Area
and beyond. Clients range from multi-million dollar owner-managed
corporations to sole proprietorships in industry, finance, culture as
well as the professions.
SOURCE STERN COHEN LLP
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