Business Succession & Sale

An Acute Intergenerational Wealth Transfer Issue

September 21, 2017

According to Benjamin Tal (Canadian Imperial Bank of Commerce deputy chief economist) as reported in the Financial Post (June 6, 2017) story Bequest Boom, Canadians between 50 and 75 years old are poised to inherit $750 billion over the next decade.

The noise surrounding this wealth transfer issue is drowning out another one. We are also in the middle of the largest exit of business assets in history, as approximately $40 trillion is in transition in the United States and Canada alone. That transition has been happening for several years and continues to happen now. Your business is, potentially, part of it.

The importance of an exit strategy

In our experience as wealth advisors, business owners are crystal clear about one issue: Founding your company is the single most important financial decision you ever made. But they are less clear about an, equally crucial, second issue: The importance of an exit strategy.

A company – particularly one that is family-owned – typically represents more than half of the value of its owner’s estate at the time the owner decides to dispose of it. We have worked with several local business owners – and ownership groups – in the past few years to help them maximize their corporate assets, organize their company for sale to a third party, transfer it to family members, or structure a management buyout.

Only 18% of family business owners have a succession plan

In a 2016 survey of Canadian family businesses by PricewaterhouseCoopers, only 18% had put together a comprehensive succession plan, and some authoritative estimates put it at even lower than that. In our experience, lack of a documented handoff plan can leave businesses vulnerable to events that could force a hurried sale, not to mention saddle the exiting owner with a sizeable – and avoidable – tax bill.

‘People should be way more concerned than they are about this,’ says Eric Gilboord, chief executive officer of the Toronto-based consultancy Warren Business Development Centre Inc. and author of a book on how to transfer a business successfully. ‘I work with a lot of buyers and sellers and find that while many people who consider selling have thought about the idea intellectually, they haven’t dealt with the emotional side,’ he says.

Seven typical mistakes

To help sellers face the issues, Mr.Gilboord likes to refer to the insights offered by Bo Burlingham, a U.S. author and expert on business transitions. Mr.Burlingham has written that business owners make seven typical mistakes when trying to sell their companies:

  1. They haven’t figured out who they are, what they want and why.
  2. They haven’t built a company that’s sellable.
  3. They haven’t prepared themselves and their companies for the transition.
  4. They haven’t sought the right kind of help.
  5. They haven’t thought through what they owe to their employees and investors.
  6. They don’t understand the potential buyer’s intentions.
  7. They don’t know what to expect before, during and especially after the deal.

Experts to consult

Successfully orchestrating a business succession and sale strategy is both complicated and time-consuming, particularly because – when executed seamlessly – several professional experts need to be involved:

  1. A wealth/investment advisor, who works directly with the owner to determine the scope of work and the details of its execution. It is the wealth advisor who, in many instances, acts as the lynchpin for the entire process.
  2. An accountant, who develops financial statements, provides taxation advice, assists in estate planning, and helps assess business value.
  3. A lawyer, who negotiates and drafts any necessary agreements, provides tax- planning advice, prepares wills and powers of attorney, and advises on existing and proposed business structures.

Business succession and sale represents a considerable challenge even for the most organized owner or ownership group – which is one of the main reasons why it is so frequently ignored or, worse still, left to the last minute. Advance planning is important because a poor transition strategy can:

  • Have a devastating impact on business results
  • Diminish the sale price of your assets
  • Undermine your retirement income flowing from the sale
  • Incur higher than necessary tax liabilities
  • Lead to chaos and acrimony, particularly if the business is family-owned

Let us help you

Working in collaboration with the business succession and sale experts you need, The Wooding Group can initiate and manage the development of a credible and coherent exit plan for your business. We want to help you preserve, protect and maximize the value of the company you have worked so very hard to build.

The Wooding Group at CIBC Wood Gundy, 780 498-5047