Your business is a part of your legacy and a part of you. It’s very likely your business is the most valuable asset you own. There’s also a good chance you’ll want to pass it on to one or more members of your family. Succession planning, however, raises a number of difficult questions. What will become of your business when you retire and how does your business fit into your retirement plan? Even if you think you’re years away from slowing down, the need to address these questions is a pressing one – you need to put an exit strategy in place today.
Perhaps you intend to pass your business on or maybe you’d be content to sell to the highest bidder? If you’re not a sole proprietor, perhaps you’d like your interest to be bought by co-owner(s), partner(s), other shareholder(s) or certain key employees and use the sale proceeds to fund your retirement or create an estate?
There are countless factors to consider as you develop a strategy to leave your business and it’s essential you have a plan to convert the value of your business to cash when the time comes. There are a few basic ways of doing that.
Selling the business as a going concern to an outsider
While finding a potential buyer for a successful business is seldom difficult, finding the right buyer – that is, someone who either has enough cash or access to financing to be able to afford the purchase – is often more difficult.
Selling a business is not straight forward. It’s critical you work with experienced, professional advisors to weigh the myriad of tax, legal and accounting considerations.
Eventually you’ll have to address a number of questions;
- If your business is incorporated, will you sell your shares or the assets?
- Can you use your capital gains exemption?
- Will you have to remove non-active investments from your business in order to qualify for the capital gains exemption?
- Will you have to extract operating assets such as accounts receivable to reduce the purchase price?
- Are you willing to accept a promissory note or mortgage to finance the sale?
- What is your business actually worth?
Passing on your business
You may have relatives, co-owners or key employees who want to take over when you’re ready to retire. Facilitating this kind of transfer can be the most satisfying option, but it can also be the most complicated, particularly if other family members are excluded from the process. You’ll need to establish a value for your business and develop the confidence your successor(s) will be successful without you. This may require involving these individuals in ownership concerns sooner rather than later.
No matter how you choose to dispose of your business, it’s critical you make provisions for its disposition in your will. This is especially important if you plan on passing the business on to a family member. You’ll need to clearly delineate the means by which they will acquire the business. Will they purchase your share in it, with the proceeds going to your estate? Will they inherit ownership or a share in the business?
And what about other members of your family? Have you ensured the distribution of your estate is equitable? To avoid disputes, you’ll want to ensure everyone – including those who won’t be brought into the business – is taken care of in some way.
Managing the proceeds of your sale
Should you sell your business, you’ll likely find yourself with a large sum of money in hand. The question is, how can those proceeds be invested to balance the need to minimize future tax concerns and still deliver respectable returns? We can help you construct a properly diversified portfolio with the proceeds based on your objectives and tolerance for risk.
VR Business Brokers would like to thank Joel Bray CFP for his contribution as a Guest Blogger on our site. Joel is a financial planner and Division Director with Investors Group in Calgary, Alberta, where he has been named Financial Planner of the Year for 2011, 2012 and 2013 for the Calgary Centre Region. Joel can be reached at Joel.Bray@investorsgroup.com or (403) 229-0555.
Perhaps you intend to pass your business on or maybe you’d be content to sell to the highest bidder? If you’re not a sole proprietor, perhaps you’d like your interest to be bought by co-owner(s), partner(s), other shareholder(s) or certain key employees and use the sale proceeds to fund your retirement or create an estate?
There are countless factors to consider as you develop a strategy to leave your business and it’s essential you have a plan to convert the value of your business to cash when the time comes. There are a few basic ways of doing that.
Selling the business as a going concern to an outsider
While finding a potential buyer for a successful business is seldom difficult, finding the right buyer – that is, someone who either has enough cash or access to financing to be able to afford the purchase – is often more difficult.
Selling a business is not straight forward. It’s critical you work with experienced, professional advisors to weigh the myriad of tax, legal and accounting considerations.
Eventually you’ll have to address a number of questions;
- If your business is incorporated, will you sell your shares or the assets?
- Can you use your capital gains exemption?
- Will you have to remove non-active investments from your business in order to qualify for the capital gains exemption?
- Will you have to extract operating assets such as accounts receivable to reduce the purchase price?
- Are you willing to accept a promissory note or mortgage to finance the sale?
- What is your business actually worth?
Passing on your business
You may have relatives, co-owners or key employees who want to take over when you’re ready to retire. Facilitating this kind of transfer can be the most satisfying option, but it can also be the most complicated, particularly if other family members are excluded from the process. You’ll need to establish a value for your business and develop the confidence your successor(s) will be successful without you. This may require involving these individuals in ownership concerns sooner rather than later.
No matter how you choose to dispose of your business, it’s critical you make provisions for its disposition in your will. This is especially important if you plan on passing the business on to a family member. You’ll need to clearly delineate the means by which they will acquire the business. Will they purchase your share in it, with the proceeds going to your estate? Will they inherit ownership or a share in the business?
And what about other members of your family? Have you ensured the distribution of your estate is equitable? To avoid disputes, you’ll want to ensure everyone – including those who won’t be brought into the business – is taken care of in some way.
Managing the proceeds of your sale
Should you sell your business, you’ll likely find yourself with a large sum of money in hand. The question is, how can those proceeds be invested to balance the need to minimize future tax concerns and still deliver respectable returns? We can help you construct a properly diversified portfolio with the proceeds based on your objectives and tolerance for risk.
VR Business Brokers would like to thank Joel Bray CFP for his contribution as a Guest Blogger on our site. Joel is a financial planner and Division Director with Investors Group in Calgary, Alberta, where he has been named Financial Planner of the Year for 2011, 2012 and 2013 for the Calgary Centre Region. Joel can be reached at Joel.Bray@investorsgroup.com or (403) 229-0555.
