Business succession and sale

The Ritcey Report

August 10, 2017

There’s a lot of talk about intergenerational wealth transfer these days – most especially surrounding Millennials – and, as I mentioned in an earlier examination of this issue, Canadians between 50 and 75 years old are poised to inherit $750 billion over the next decade. The noise surrounding these two wealth transfers is drowning out a third.

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 is happening now. Your business is, potentially, part of it.

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.

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.

And there may even be other necessary players involved. For example, you may wish to engage a Business Valuator, who will help you estimate fair market value for the company. A Business Broker can be helpful in finding a buyer and providing insights on enhancing business value. The Commercial Account Manager at your bank can, among many available services, offer you access to financing options to support the business transition, before, during and after the event.

As you can see, 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

Working in collaboration with the business succession and sale experts at Scotia Wealth Management and supported by the expertise of an accounting company and a law firm – both of which are readily available to us in the Annapolis Valley area – the Ritcey Team can initiate and manage the development of a credible and coherent exit plan for your business.

You have worked hard to create a durable business legacy. The Ritcey Team welcomes the opportunity to show you how to preserve, protect and maximize the value of what you’ve taken so much time and trouble to build.