Who to transfer your business to and how

Transferring your business to a family member, key employee or outside buyer? The specifics of your action plan will depend on who your successor is. Follow these tips for transferring your business and check out our list of things to consider when selling.

Whether you're transferring your business to family members, employees or outside buyers, you need a plan. There are a number of things you have to do and consider, but your exact course of action will depend on whether you're selling to a family member, key employee or outside buyer.

Here are the most common business transfer scenarios:

  • Transfer to family
  • Sale to management or employees
  • Sale to a third party
  • Sale to an associate
  • Gradual wind down

Tips for transferring to a family member

  • Make succession planning a family project. Get family members who work at the business involved and together create a transfer plan and business development plan. This is a great opportunity to assess their leadership and ability to work as a team.
  • Choose your successors based on your criteria as well as the technical, administrative and management skills and current stage of development of the people you're considering.
  • Keep peace in the family by setting up a family council and bringing in a management coach.
  • Make a list of the knowledge you want to transfer and institute a knowledge transmission and acquisition process that follows a training plan.
  • Specify the role the new owner will play during the transition.
  • Sort out your finances so ownership can be transferred smoothly when the time comes.

Tips for transferring to employees

  • Choose your successors based on future management's criteria and the roles and responsibilities outlined in the succession plan.
  • Assess the leadership, strengths and weaknesses, and technical, management and administrative skills of your chosen successors. Suggest a personal and professional development plan tailored to their needs and the needs of the business.
  • Expand the business in accordance with its challenges and needs: update the business plan, create the right conditions for obtaining financing for the transfer and other growth projects and make sure these initiatives are feasible.
  • Determine the transferor's place in the business based on the role he or she will play during the transfer (mentor, ambassador to financial partners, customers and suppliers, lender).
  • Envision desired stock ownership scenarios.

Employees may also suggest setting up a worker shareholder cooperative in order to purchase and hold a block of shares so they can help finance the transfer. A whole different set of procedures needs to be followed for such a process.

Tips for selling to a third party

Selling to a third party is simpler because there are fewer emotions involved. You get your money faster and easier, the transfer is basically seamless and you don't have to worry about your successors.

Selling to a third party entails the following steps:

  • Determining the financial implications
  • Finding a buyer
  • Negotiating the terms of sale
  • Fine-tuning your personal financial plan
  • Helping the buyer keep the business running and growing so what you built continues to thrive

Work with qualified professionals who can provide help when you need it.

Main considerations when selling to a third party

  • Have a chartered business valuator determine the market value of your business and suggest the best way of setting the sale price.
  • Set the sale price, giving yourself room to negotiate.
  • Prepare the business for a comprehensive operational audit.
  • Draw up the necessary business transfer plans:
    • Strategic plan
    • Financial plan
    • Production plan
    • Human resource plan (management, structure, compensation, agreements, insurance, etc.)
    • External relations plan (suppliers, customers, governments, municipalities, environment, etc.)
    • Legal plan (contracts, leases, loans, patents, etc.)
  • Identify the potential sale scenarios and analyze their tax implications:
    • Sale of assets
    • Sale of shares
    • Sale of shares and assets
  • Identify what types of potential buyers are likely to meet your criteria:
    • Current customers
    • Current suppliers
    • Local or foreign competitors
    • Other

There are a number of tools that can help you select family members or employees to transfer your business to, including psychometric and in-basket testing. These tools also have the advantage of dialing down emotions during this crucial step in the business transfer process. Once you have ironed out what the transfer will look like, you can begin putting together your strategic plan—a key step in ensuring the continuity and growth of your business.