Key Steps for Transferring Your Business: Financial Considerations, Taxation, and Planning

There comes a time in the life of business owners when they wonder about the possibility of transferring their business either to one or more family members or sometimes to a person who does not have a family connection such as a long-time employee.

Typically, they will discuss this with their advisor. This person is often their accountant, their agroeconomist, their banker. However, the questions remain the same: is the next generation ready? Will we have enough money to live on after the transfer? What price can we ask for the business? Unfortunately, there is no single answer. Each case is different. Fortunately, the transfer process always follows certain common guidelines and to succeed, you must follow certain steps.

Firstly, it is important to establish the financial needs of those who are going to sell the business. We need to know what they will need to live in order to establish what the business will need to generate to pay them. Of course, in this evaluation, it will be necessary to take into account the personal savings of the transferors and what they will receive from government programs such as the old age security pension and the Régie des rentes du Québec (RRQ).

Know the financial capacity

The financial amounts missing in the needs assessment will necessarily come from the company, because those who will take over generally have no or few financial resources. Here, carrying out an analysis of the company’s payment capacity becomes essential to determine whether the income generated in the coming years will make it possible to support the next generation, finance investments and above all, free up sums to pay the transferors. It is sometimes more interesting to carry out a gradual transfer to better position the company’s finances before the complete withdrawal.

Before setting the financial process in motion, it is important to validate the intentions of those who will take over. Do they really want to become owners? Are they ready to take on part or all of the running of the business? Is the financial scenario suitable for them? Discussions between members of the same family are sometimes difficult; the intervention of transfer specialists can help clarify everyone’s intentions and better explain expectations.

Taxation and paperwork

We always want to reduce the tax bill when making a transfer. Several tax rules make this possible. However, taxation should not be an end in itself. The tax advisor will be able to find the best way to reduce taxes while respecting the real objectives of the transferors and the successors. Certain legal transactions will be necessary and the use of certain specialists, such as a notary or a lawyer, will be inevitable so that things are done according to the rules of the art and for the benefit of all.

A transfer process is not done by shouting scissors. It takes time to assess needs, position the company financially to allow the transferors to withdraw, accumulate savings and train the next generation to take over until the transfer is complete. Ideally, such a journey should start between 5 and 10 years before the transfer. Taking the time means giving yourself every chance so that the business continues and that everyone finds their benefit and, above all, their place.

This content was produced by the Fédération de la jeunesse agricole du Québec. The editorial team of Our Earth had no role in the production of this partner content.