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Planning ahead is the key factor for success with any business sale or transfer. As a vendor, you want to be sure that you're in the best position to get the most for your business when you hand it over to somebody else. By leaving your plans until the last minute, you risk not getting the full value for your company and encountering common obstacles, such as unforeseen tax implications, bumpy negotiations with buyers or successors, complex family issues and of course the added stress.
Plan ahead
One of the first steps in good planning is to get a lawyer involved at least 12 months in advance. Getting legal help as early as possible in the process can help you avoid frustrations down the road such as delays, extra expenses and ultimately a deal that doesn't meet your expectations. Although every business transition scenario is unique and has specific legal ramifications, here's how a lawyer can help you:
Understanding the psychological impact first
A major step is to first deal with the psychological impact of your decision to exit your company. Many vendors aren't ready to accept that business succession can be a matter fraught with emotion. After all, you have invested a great deal of time and energy and often made many sacrifices to build your company. A lawyer, who has an objective viewpoint, can help you step back and separate your personal interests and those of your business.
Finding the right exit strategy
Choosing the right exit strategy that meets your personal and business needs can be a complex matter. Your options could include: family succession, selling your business to outside interests or electing for an MBO. Whatever you choose to do, a lawyer can help you work through the legal ramifications. BDC also offers transition planning, which can help you assess exit options and prepare your plan. As well, BDC provides specialized financing for your business needs.
Carefully valuating your business
As a business owner, you want to be sure that your business is meticulously valuated to ensure that you're getting the full value. Valuators will look at combination of factors such as the earnings multiple, the earnings before interest, taxes, depreciation and amortization. Working with your lawyer and accountant, for example, can help you get an accurate portrait of your assets and liabilities. After all, you want a realistic estimate of what you can expect to get for your business at the negotiating table.
Working out the details
In today's business world, financial deals can't be made on handshakes. And that rule is particularly true when it's time to hand your business over to somebody else. Getting a lawyer involved to handle complex legal matters is essential. Some of the common aspects that a lawyer would handle are:
- Providing critical legal input at the planning stages of the deal to avoid common pitfalls and prevent any major incompatibilities between the business deal and the legal framework
- Setting up the legal milestones of the entire process
- Examining the structure of your existing company (sole proprietor, partnership or corporation)
- Performing a legal audit of the business to identify all potential transition issues and execute corrective measures prior to entering into a due diligence review of the business with the potential buyer
- Working with your tax consultants to establish an optimum deal to minimize any potential income tax
- Drafting and negotiating all of the various transition agreements such as, share purchase, shareholder, security and trust
Getting the financial deal you want
A lawyer has the hands-on experience and skills needed to help you close a financial deal that is ideal for you. Whatever your exit strategy, you want to be sure that you have the safeguards in place to protect your interests as a vendor. For example, an MBO inevitably involves the vendor investing in the buyer; if your buyer fails to meet his or her commitments, then you need a back-up plan, which a lawyer can put in place for you.
Settling disputes
Disputes are very common during the business transition process, particularly with family succession. A good lawyer has the soft skills needed to help you through emotional family issues. A key legal consideration, for example, will be how to divide equity among family members. An experienced lawyer can help you shift the focus from rivalry to working out the best deal for everybody involved.
Gilles Thibault is a member of the Quebec Bar and the director of the business law sector at HEC Montréal Executive Education.
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