Building a business with the goal of eventually selling to an external buyer, or transitioning it to the next generation, means doing what it takes to remove yourself from its daily operation and taking strategic steps to enhance the company’s value. In other words, it pays to make yourself obsolete as a business owner/operator when developing a business succession strategy.
But it doesn’t end there.
Careful corporate structuring and tax planning is critical to maximizing your sale price and return on investment. At the same time, managing the communications around a business exit in relation to family members and company employees is an important aspect of any successful exit. Those were just some of the key insights shared by our panelists during The Bridgewell Sessions, Volume 2—How to Succeed at Business Succession.
The Bridgewell Sessions are part of an ongoing series that brings together experts from across the group benefits, wealth and financial planning and insurance sectors. Our team invites a diverse and ever-changing group of specialists to share their expertise, highlight key trends and provide insights designed to enhance your long-term financial wellness.
This conversation was led by Bridgewell founding partner Chad Tranter, who invited panelist Brad Nathan, President of Lynx Equity Limited, to explain some of the most important considerations when preparing a business to sell (click on the video link at the end of this blog and advance to minute 4:50 for the start of this segment). Nathan has spent his career acquiring, growing and selling small to medium-sized businesses in Canada, the U.S. and abroad, and regularly advises entrepreneurs on implementing financial reorganizations, exit strategies and operational improvements to optimize sale prices.
He noted several criteria that buyers will look to satisfy when conducting pre-purchase due diligence, including the financial stability of the organization and any potential over-reliance on a specific customer or supplier. An even more important consideration, according to Nathan—and one that’s often the deciding factor in an acquisition—is whether the business is overly-reliant on the owner/operator.
He added that it’s absolutely crucial for a company to have (preferably long-term) contracts in place with everyone from key employees to suppliers and partners. Buyers will analyze those agreements to see if they can be continued after an ownership transition, which can span over a period of two to three years to help ensure leadership continuity.
Nathan closed by highlighting the current opportunity facing exiting business owners as we emerge from the COVID-19 crisis. “There’s a lot of capital on the sidelines and people looking to make a deal, and that’s driven up prices,” he explained. “The challenge today is you see financial statements muddied by COVID-19, government loans or grants. The fewer times you hear vendors say, ‘You have to ignore the past two years of financials to make normalizations and adjustments,’ the better. The more times we hear that, the harder it becomes for us to do a deal.”
Have additional questions for Brad? Contact him at
Take a proactive approach to tax and corporate structuring
Next, the conversation shifted to a focus on the tax implications of a business exit, as Tranter introduced Jim MacGowan, president of J. MacGowan Tax Advisory Limited. As a career public accountant, MacGowan has worked with countless entrepreneurs, helping them develop tax, corporate structuring and estate strategies to position for an effective business exit (click on the video link at the end of this blog and advance to minute 19:00 for the start of this segment).
The segment kicked off with a simple question: Is there ever an ideal structure to prepare a business for sale or generational transition? The short answer is: no. But there are better structures, and those are the ones that provide greater flexibility to the buyer and seller.
“You don’t always know what the prospective purchaser will want to buy, but the ideal structure is the one that minimizes tax,” MacGowan said.
He emphasized the value in building a business with its eventual end in mind, while highlighting the difference between asset and share sales—and the natural tax-driven conflict between vendors and buyers. “With a share sale, it tends to be lower tax and there’s a lifetime capital gains exemption that may eliminate the tax for a vendor altogether,” he explained.
“From the purchaser’s side … they want to write off the purchase price of property or equipment, so they prefer an asset sale.” MacGowan noted that at times, tax accountants can bridge that gap and create a win-win where both the purchaser and seller achieve their transactional goals through effective tax planning.
MacGowan also took time to outline the benefits of the lifetime capital gains exemption and noted how it’s an ‘incredibly valuable tool’ from a tax-planning perspective. So, too, is a focus on restructuring through the full life cycle of a business—from start-up to mid-life and then through the company’s end phase.
MacGowan’s overarching advice is to be proactive when it comes to tax planning and set the stage for business succession well before it comes time to say goodbye to the organization you’ve worked so long and hard to build.
Want to know more about tax and corporate structuring? Contact Jim at
Involve family in succession discussions
Rounding out the Session was Phil Kriszenfeld, the president of Transitions Mediation and Consulting Group, and a counsel to business-owning families for more than 30 years. Kriszenfeld specializes in helping his clients manage communications and navigate inter-personal relationships related to managing, growing and exiting businesses. He explained how family interactions are often emotionally-charged when it comes to implementing a business succession strategy—and why they can easily derail the success of a transaction or transition (click on the video link at the end of this blog and advance to minute 36:30 for the start of this segment).
“The main challenge is all around communication,” he explained. “Family business owners, who are often moms and dads, generally have a hard time wearing both hats as parents and boss. For the next generation, the challenge is: Am I working for my parent, or is my parent my boss? That differentiation affects the communication.”
Kriszenfeld pointed out that the family conversations that don’t happen are often more problematic than those that do, and can result in fractured relationships or misunderstandings.
He says that most family communication challenges can be traced back to how the next generation was integrated into the business. Many owner/operators will place children or relatives in important roles, but will never define how they should interact with other, non-family executives or team members, let alone the full extent of their responsibilities, their influence or what a parent’s eventual exit means for their future.
“How do you mentor them to prepare before they show up for work, to respect the system their parent has built and not be the one who thinks they can do it better?” Kriszenfeld questioned.
He pointed to the importance of having transparent, facilitated discussions and establishing checks and balances to maintain strong familial relations and help preserve a company’s culture. That’s an important consideration not only for retaining non-family staff, but also positioning a company to sell or transition.
“People want to work with companies where there’s stability and assurance about their future,” Kriszenfeld says. “The same goes for clients. Family issues cause a ripple effect that can cause them to lose key people or customers.”
His closing advice for business-owning families whose children factor into succession discussions: include them from an early age. Talk to them about how the business operates, what makes it unique and how they may one day fit in.
“The earlier they understand the business and the family wealth, the better,” he stressed.
Couldn’t make the live Session on business succession, or prefer to watch it again? We have a full recording available to enjoy at your convenience.
And be sure to join us in the spring for The Bridgewell Sessions, Volume 3. We’ll bring together another dynamic cast of speakers who will explore what it takes to achieve overall wellness—and what the concept means to business owners, leaders and professionals.
The Bridgewell team
For assistance with your group benefits, wealth and financial planning, corporate or personal insurance needs, contact one of our partners today.
