Exiting your business is a common obstacle for many entrepreneurs. You are ready to sell but how do you develop an exit strategy that meets your needs? Preview our slides to learn how you can get your business ready for sale, develop your exit plan and be mindful of tax and legal considerations. To view our video coverage of the event, visit: http://www.welchllp.com/resource-centre/videos/events/

1. Ask the Experts – An Advice
Series for Entrepreneurs
Exiting Your Business

2. AGENDA
RBC Royal Bank:
• Introduction and Considerations in Establishing
the Top Line
Speaker: John Abbenda
Welch LLP:
• Readying Your Business for Sale, Tax
Considerations, Who is going to buy and how?
Speakers: Candace Enman, Zoran Vranjkovic

3. AGENDA
Perley-Robertson, Hill & McDougall LLP/s.r.l.
• Family Trusts and other legal
structures/Considerations
Speaker: Anthony McGlynn

4. Planning for Your Personal and
Business Retirement:
John R. Abbenda, CFP, TEP, CPCA
Financial Planning
Ontario East
4

5. What is Business Succession?
• Business Succession is the transition of a
business asset to family or another owner. It
could also involve the windup of a business.
• Business Succession is often confused with
Business Owner Retirement.
Lets look at Business Succession in a
different light…
5

6. Business Owner Retirement
Personal Retirement Goals or Legacy Goals
minus
Personal Retirement Assets
equals
Business Succession Needs
6

7. Retirement Planning Process
Visualize and Quantify a Life Plan
Identify/quantify business assets
Identify/quantify personal assets
CONSTRUCT the Plan
Implement solutions
7

8. STEP 1
Visualize and Quantify Your Future
8

9. Visualize and Quantify Your Future
We believe there are 7 key areas of your life (in
addition to your business) that need to be visualized
and discussed in order to develop a solid financial
plan.
None of these areas is about money – but they all
have a significant financial impact now and into the
future.
9

10. Life Planning
Family
• How will your spouse and children factor
into your transition plans?
• How will your business retirement affect
your family life?
Health
• How do you plan to change your lifestyle
after you sell your business?
• What will you and your spouse do to keep
active in retirement?
10

11. Life Planning
Home
• How do you see your current home fitting
into your future?
• Have you thought about purchasing a
vacation home?
Lifestyle
• What activities will you replace work
with?
• How will you replace the social contact
your business provided you?
11

12. Life Planning
Work
• What did you like about business
ownership? Is there a way to carry this
beyond retirement?
• How will the new owners engage your
expertise?
Legacy
• How do you plan to give back to the
community that supported your business?
• How do you plan to share the fruits of
your success with others?
12

13. Life Planning
Your Mind & Spirit
• How will you replace the mental
challenge that running a business
offered?
• What are some adventures that you put on
hold while running your business that you
would now like to pursue?
13

14. Summary
It’s not only about the money!
• Visualizing your future and sharing that vision with your
spouse, family, business partners and other loved ones
is probably the most difficult and overlooked step in
planning for retirement.
• When you have developed definition around what you
want your future to look like, the next step is to quantify
your dreams and goals.
• Your Financial Planner can help you attach values to
these and begin the financial planning process.
14

15. What we can do with you.
Help you identify what you want the future to look like.
Facilitate the discussion.
Identify personal and business assets that will be used
within the financial plan.
Work with your professional advisors to develop an
integrated personal and business retirement plan.
Work with your professional advisors to put solutions in
place to accomplish the plan.
Re-visit the plan regularly to monitor progress and make
changes as needed.
15

16. Thank you!
This presentation has been prepared for use by RBC Dominion Securities Inc.*, Royal Mutual Funds Inc., RBC Private Counsel Inc. and RBC DS Financial
Services (Quebec) Inc., Member Companies under RBC Investments. The Member Companies, Royal Bank of Canada, Royal Trust Corporation of Canada
and The Royal Trust Company are separate corporate entities which are affiliated. In Quebec, financial planning services are provided by Royal Mutual
Funds Inc. or RBC DS Financial Services (Quebec) Inc. and each is licensed as a financial services firm in that province. In the rest of Canada, financial
planning services are available through RBC Dominion Securities Inc., Royal Mutual Funds Inc. or RBC Private Counsel Inc. Insurance products are only
offered through RBC DS Financial Services Inc., RBC DS Financial Services (Ontario) Inc., RBC DS Financial Services (Quebec) Inc., subsidiaries of RBC
Dominion Securities. *Member CIPF.
The strategies, advice and technical content in this presentation are provided for the general guidance and benefit of our clients, based on information
that we believe to be accurate, but we cannot guarantee its accuracy or completeness.This presentation is not intended as nor does it constitute legal or
tax advice. Clients should consult their own lawyer, accountant or other professional advisor when planning to implement a strategy. This will ensure that
their own circumstances have been considered properly and that action is taken on the latest available information. Interest rates, market conditions, tax
rules, and other investment factors are subject to change.
™Trademark of Royal Bank of Canada, used under licence. RBC Investments is a registered trademark of Royal Bank of Canada, used under licence. ©Royal
Bank of Canada 2003.
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17. Readying
Your Business
for Sale
Candace Enman, CA, CPA
President, WelchGroup Consulting

18. Owner’s Mindset
• View their businesses as assets
• Think like an Owner
• Build your business to last
decades, but prepare to sell it
tomorrow

19. Demographic Wave
6.0M Private Businesses
+70% owned by BB & WWII Generation
4.2M Must Change Hands
in the next 5-20 Years
The most important Demographic Wave of the 21st Century

20. Owner’s Value Challenge
1 out of 4 – Middle Market Companies
sell when taken to market
Company
Value
$
Investment
Survival
Cash Flow
Wealth
Time
Most Private Businesses have Zero Economic Value

21. Value ≠ Revenue or EBITDA
• Profitability trend
• Analysis of risk
Value =
Profit that is
Sustainable
&
Transferable
•
•
•
•
•
•
•
•
Company
Customers
Employees
Operations
Infrastructure
Processes
Legal
IP

22. Due Diligence
1. Can you survive a
due diligence?
2. Would you like
the results if you
performed a due
diligence on
yourself?

23. Business Value Drivers

24. Red Flags can Erase all your Value
Top 5 Red Flags
1. Do it all Business Owner
2. Strategic direction
3. Talent management
4. Financial management
5. Quantifiable advantage

25. What’s your Value Scorecard?

26. Stage your Business for Sale
 Know your value
 Think like a Buyer
 Turn weaknesses into opportunities
 No surprises at due diligence

27. For More Information
Candace Enman, CA, CPA
President, WelchGroup Consulting
cenman@w-group.com
ca.linkedin.com/in/candaceenman
(613) 236-9191 x195
www.w-group.com

28. Tax Considerations
Who is going to buy & how?
Zoran Vranjkovic, CPA, CA, CFP, TEP
Senior Tax Manager, Welch LLP

29. Agenda
•
Asset sale vs. Share sale
•
Corporate structures
•
Earnouts

30. Asset Sale
•
Corporate tax
 Recapture
 Capital gains
•
Personal tax on distributions
•
Purchase price allocation
•
Purchaser – step-up in tax basis
•
Purchaser will generally prefer asset deal
•
HST election

31. Share Sale
•
Lifetime Capital Gains Exemption
($750,000/$800,000+)
•
Personal tax at capital gains rates
•
Due diligence process
•
Indemnification by vendor
•
Vendor will generally prefer share deal

32. Share Sale – Capital Gains Exemption
•
$800,000 lifetime capital gains exemption
 at time of sale, CCPC all or substantially all (90%) of assets used
principally (50%) in an active business carried on primarily (50%) in
Canada;
 shares were not owned by an unrelated person in 24 months preceding
sale; and
 in 24 months preceding sale, CCPC with more than 50% of assets used
principally (50%) in an active business carried on primarily (50%) in
Canada
•
Potential tax savings – up to $185k - $198k per
exemption
•
Trust planning to multiply access to CGE

33. Share Sale – Capital Gains Exemption
Considerations
•
Timing of planning
•
Alternative Minimum Tax
•
Foreign activity/foreign subsidiaries
•
Non-resident purchaser
•
Business real estate

34. Hybrid Sale
•
Sale of shares by individual/trust – Capital Gains
Exemption
•
Corporation sells assets
•
Consider where:
•
 capital gains exemptions fully use;
 significant intangible assets; and/or
 compromise with purchaser.
Purchaser – step-up in tax basis

35. Corporate Structures
CGE Questionable
Family
Principal
Family
Trust
Common
shares
Holdco
Common
shares
Opco
•Holdco may have
excessive nonbusiness assets
•CGE only available
to individuals (sale
must be by trust or
individuals)

36. Corporate Structures
Multiple CGE’s
Principal
Family
Common
shares
Family
Trust
•Trust may sell
Opco shares
•Principal and
family may
access CGE
•Surplus funds
may accumulate
in Holdco
Common
shares
Opco
Holdco

37. Corporate Structures
Foreign Activity
Principal
Family
Common
shares
•Canadian Opco
may qualify for
CGE (business
primarily in
Canada)
•Foreign Opco
may be sold at
same time –
capital gain
Family
Trust
Common
shares
Foreign
Opco
Holdco
Common
shares
Canadian
Opco

38. Corporate Structures
Business Real Estate
Principal
Family
Common
shares
•Allows for sale
of Opco and
retention of real
estate
•May sell Opco
and Realtyco
•Sale of Realtyco
may qualify for
CGE
Family
Trust
Common
shares
Realtyco
Holdco
Common
shares
Opco

39. Earnouts
•
Option #1 – Include value of earnout in proceeds at
time of sale
 Cashflow issue
 Risk if not received after more than 3 years
•
Option #2 – Cost recovery method





•
Arm’s length capital transaction
Due to difficulty in valuing goodwill
No longer than five years
Notify CRA
Vendor is Canadian resident
Goodwill – earnout component fully taxed

40. For More Information
Candace Enman
President, WelchGroup Consulting
cenman@w-group.com
(613) 236-9191 x195
www.w-group.com
Zoran Vranjkovic
Senior Tax Manager, Welch LLP
zvranjkovic@welchllp.com
(613) 236-9191 x282
www.welchllp.com

41. Family Trusts and other
Legal Structures /
Considerations
Anthony P. McGlynn
Perley-Robertson, Hill & McDougall LLP/s.r.l.
Welch LLP, 151 Slater Street, Suite 1100, Ottawa
Thursday, November 14, 2013,
2:00 p.m. – 3:00 p.m.
(Networking 1:30 p.m. – 2:00 p.m.

42. Business Structures
•
•
•
•
Corporations
Partnerships
Limited Partnerships
Sole Proprietorships

43. Family Trusts
•
•
•
•
Shareholder of a corporate structured business
Income Splitting
Maintaining control
Capital gains tax issues

44. QUESTIONS