Business Finders Canada

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Never too early for an exit strategy

It’s never too early to plan your exit.

Starting with the end in mind is good strategy in chess – and in business.

For business owners, successful exit hinges on succession. But let’s put into perspective how uncommon it is to celebrate a graceful departure: About 80 per cent of the businesses on the market will not sell.

The most common reason is owners don’t realize the need to properly plan for the sale of their business.

Statistics Canada found many business owners are at the age where thoughts of retirement start to germinate. Those between the age of 50 and 64 make up about 50 per cent of those who own small and medium-sized businesses.

However, a survey by PwC Canada found only 18 per cent of Canadian family businesses have developed a comprehensive succession plan that has been both documented and communicated. That’s less than one-fifth.

Let’s look at the key considerations for an exit strategy.

Consider your options. Identifying how you’ll make your exit is a good first step that can have an impact on your preparations. Will you pass your business on to a successor? Will you transfer ownership through a management or employee buyout? Will you sell the business to a third-party?

Create a guidebook. It may sound like common sense, but to transition out of a business, it has to be able to operate without you. A business is much more desirable to a buyer when there are clear operating procedures. Develop an operations manual that outlines key procedures – day to day and month to month.

Get your house in order. You need to make sure all of your documents are up to date and well-packaged. That includes up to three years of accountant prepared financials, balance sheets and tax returns. Organize franchise or licensing agreements, employee contracts and leases.

Make an inventory. Often businesses are made up of many pieces. Know what those pieces are and what they’re worth. Some of those pieces are physical, like company vehicles, equipment, inventory and real estate. Some of those pieces are intangible, like customer lists and proprietary processes.

Turn to the experts. There are complicated issues involved in selling a business that are best handled by experts to avoid a damaging mistake – tax issues, employee rights, confidentiality and contracts to name a few. Tapping into the expertise of a professional and experienced business broker can save you a lot of grief.

Determine the value. Once you have a clear picture of your inventory and you have your documents well organized, it’s easier to determine the true value of your business. Again, turning to an expert can mean the difference between a successful sale at the right price and stagnating on the market or selling far below the true value.

Thinking through your exit strategy and taking clear steps toward succession – even when you’re more focused on growth than transition – is the best way to ensure you have a well-run and well-prepared business when it’s time to move on to your next journey.

For experienced advice, contact Business Finders Canada now at 1-888-377-8009.

4 reasons confidentiality is key

Keeping a secret isn’t easy.

In fact, Benjamin Franklin once mused: “Three may keep a secret, if two of them are dead.”

Still, secrecy is paramount when it comes to selling a business.

Confidentiality at all times – before, during and after – is the most important factor in the successful sale of an existing business.

Here’s why:

Fear spreads like the flu. Employees may get nervous if they learn that a business is for sale, especially those in key management roles. Valuable employees may decide it’s time to start looking for a new job, leaving you shorthanded when making sure your business is running smoothly is essential.

Relationships may suffer. Sound working relations with customers, suppliers, creditors and landlords are vital. Word of a potential sale could disrupt those relationships and weaken your competitive position – dragging down the value of your company and crippling the sale.

Loose lips sink ships. That phrase was one of the most successful marketing campaigns of the Second World War. People were encouraged to avoid careless talk to help ensure enemy agents didn’t find out shipping routes or other vital information that could put people in harm’s way. The idiom applies here, too. Being flippant with information to non-vetted potential buyers could compromise trade secrets and sensitive financial information.

That’s how rumours start. Business can be cutthroat, especially in highly competitive markets. If word gets out that you’re selling, competitors may use that information to attack your reputation, spread negative stories and steal your customers. Your competitors may also start to market more aggressively to take advantage of the sale.

How do you keep the sale confidential?

Hiring a professional business broker is an important first step to protecting confidentiality. If you want to sell your business yourself, confidentiality is lost.

Business Finders Canada has all potential buyers sign a non-disclosure agreement.

We do not disclose information without your permission. In most cases, we don’t list publicly on MLS for everyone to find.

Instead, we keep a confidential directory of qualified buyers who are actively looking for a business to purchase.

With the proper procedures, it is possible to minimize the risk of an untimely disclosure.

For experienced advice, contact Business Finders Canada now at 1-888-377-8009.

Proposed tax changes bad for business

Why the Proposed Canadian Tax Changes are a Business Killer

The tax changes proposed by the federal Liberals are a slap in the face to small business owners.

Federal Finance Minister Bill Morneau’s office is preparing to launch the most radical tax overhaul in 50 years. It’s already causing a lot of anxiety among Canadians.

In fact, dozens of organizations from across the country have banded together to form the Coalition for Small Business Tax Fairness — a unified voice to oppose the proposals.

Morneau plans to add a new tax on investment income in a corporation, along with tough new rules for compensation within a family business. The changes come at a time when businesses are already being bombarded by unsustainable increases to minimum wages, rising electrical power costs in North America, cap and trade or carbon taxes, increases to CPP and EI premiums, and the serious trepidation attached to the NAFTA renegotiations.

The Trudeau government is justifying the tax changes by saying they’re about making the rich pay their fair share of taxes. However, these changes go way beyond that – injuring the middle class. The new rules would impact all business owners across the spectrum.

These changes are a business killer. Here’s why:

Starting after 2017, capital gains realized by a family member would no longer be sheltered with the lifetime capital gains exemption to the extent those gains accrued while the individual was a minor. Further, any capital gains accrued while the shares are held in a family trust, or gains subject to the tax on split income would not be eligible for shelter using the lifetime capital gains exemption.

The proposal would restrict business owners from spreading income to family members in lower tax brackets, limit the use of private corporations to make passive investments, and limit the ability for a corporation to convert regular income into capital gains.

While it’s complicated, overall the proposed changes will have a major impact on family succession planning, exit strategies and the flow of passive income. All bad news for small business owners.

Most small business owners take on a ton of risk, go into debt or leverage their house, usually don’t pay themselves much when first starting out, and work extremely long hours in the hopes of making a go of the business. They hire people, pay rent or buy property, pay for advertising and salespeople, invest in inventory, pay tax as they go and operate under an ever-increasing set of government rules and guidelines.

So much for the reward of starting and running a small business. We should be encouraging entrepreneurs, not discouraging them.

If anything, business owners need a break.

Get angry and get in touch with your local MP to make it known that these changes are unacceptable to business owners in Canada. As Canadians, we don’t need – or want – additional or higher taxes.

What can you do?

Get in the know – You can view the announcement made by Canada’s Department of Finance, or to better understand the impact of the proposed changes on business, read this recent article in the Globe and Mail.

Take action – If you feel strongly enough about the proposed changes we would encourage you to write your local MP so he is aware of your concerns. You can also submit a response directly to the Finance Minister.