Transferring your business: Lesser-know options
Many Quebec business owners are getting close to retirement. After so many years of working tirelessly and taking on major personal financial risks and responsibilities, entrepreneurs have to face the next step: all the questions and choices about how to transfer their business.
According to data published in the Indice entrepreneuriale québécois, 6 out of every 10 business owners (58.9%) whose companies have at least 1 employee are planning to sell or exit their business in the next 10 years.1 But many of them are hesitant to start the transition process.
Getting ready to transfer your business is definitely an emotionally demanding and logistically complex process for business owners. After putting so much time, work and energy into building a business, the idea of handing it off to someone else can be daunting.
That's why it's so important to prepare for this step.
When to start planning your retirement as an entrepreneur
There's so much more to transferring a business than the transaction itself. There's identifying a successor, preparation, knowledge transfer, due diligence, financial planning, and the transition period too. People tend to underestimate how complicated transferring a business actually is. The whole process can take 5 to 10 years—more if the ownership structure is complex—so rigorous planning is a must.
Many transfer options
Most of us are familiar with the classic business transfer model where you sell all of your shares to a buyer. But did you know that there are many other options to choose from?
Partial transfer
The partial transfer model is growing in popularity. It lets a business owner sell part of their business while staying involved in managing it. It's an option that lets you transfer the business gradually, one step at a time. This model also works if you're looking to add a new shareholder to breathe some new life into the company. It takes off the pressure of finding a successor while keeping you involved in the long-term survival of the business.
For example, one Desjardins client in the manufacturing sector wanted to sell his business to the company's management team. He was dead set on it because of how hard they'd worked to build such an excellent company. But there was one problem. The company's value was too high for the key employees to buy it outright and taking on too much debt would have jeopardized the company's financial stability. With help from Desjardins, the owner decided on a partial transfer of 49% of the business as the initial phase. This strategy hit several of his objectives: secure a part of his wealth, make more room for his team, and step back from his management and shareholder responsibilities in a gradual way. The best of both worlds.
Monetization
This strategy gives you the option to share ownership with an investor who brings both capital and expertise to the table. And it lets you transfer the equity that's built up in the business over the years to the shareholders that created it. It's a middle path that takes a load off the entrepreneur, who can then plan for business development. They do have to agree to share ownership, however. As for the investor, they could either be passive and stay out of business operations or they could be an active, strategic investor. In the current economic climate, where businesses want more agile governance, more and more entrepreneurs are taking this route.
Creating a worker cooperative
With this option, the majority of employees become members of a new entity. This way of transferring management and power boosts confidence among employees, clients, and also financial partners. You'll need to shore up strong leadership and a sustainable financial and tax strategy. This model has been gaining in popularity recently. In particular sectors and for businesses with a strong culture of committed employees, it makes a lot of sense for employees to mobilize and carry the torch forward together. It's a model that's not widely known yet and it deserves more attention.
Get support to make the best choice
Your business is an important part of your wealth. Transferring it needs to be included in your retirement plan. Every one of these options comes with its own requirements in terms of planning, taxes and financing. Talk to your account manager about your plans. They'll be able to connect you with lawyers, tax experts, accountants and other specialists who'll be able to support you with your specific needs. You'll get personalized support from people who already have several successful transfers under their belts.
1 Indice entrepreneurial québécois 2022 : https://indiceentrepreneurialqc.com/wp-content/uploads/2023/05/IEQ22_vFINAL.pdf