HOW TO EXIT YOUR BUSINESS: THE FINANCIAL IMPLICATIONS

Selling your business, transferring it on to your family members or others, or closing for good (either by dissolution or bankruptcy), triggers a number of financial events that you’ll need to resolve.

An accountant and a lawyer can assist you with most aspects of exiting your business, and should be consulted before you make any decisions.

Selling Your Business

When selling, enlist the help of an accountant, broker, or business valuator to ensure your business is properly priced. These professionals can help you get the best price possible for your business, without leaving any money on the table.

You can also use market research to understand and prove the value your company might bring when you put it up for sale. Refer to our Market Research-Exiting section for more information.

If you are incorporated, you can sell all or part of your business through a share transfer, or by going public. You can raise capital through issuing an Initial Public Offering (IPO), which is selling shares to the public and your corporation changes its status from a private to a public company. If you’re interested in this option, it’s highly recommended that you seek legal counsel. If you don’t have a lawyer, you can contact the B.C. Lawyer Referral service.

Succession Planning

If you decide to transfer your business to family members, friends, or other parties, the financial implications will depend on your business structure and the method you choose to transfer your ownership.

The common ways to transfer ownership of a company to family members include:

• Through joint ownership, either using a share transfer (if the business is incorporated) or using a partnership (if the business is an unlimited company)
• Through a sale, wherein your heirs would purchase the business outright, or over a period of time
• Through your will or living trust
• Through gifting, wherein you would give parts of your business to your heirs gradually over several years

Due to the complexities of succession, we recommend that you draft a formal succession plan for a smooth transition, and that you retain the services of a lawyer and an accountant to help you sort through the legal and tax implications. Refer to our Operations Management-Exiting section for guidance.

NO FREE LUNCH

Beware of companies bearing great promises of Government Grants.......while asking you for your credit card number. Do not provide your credit card information to these companies. The Competition Bureau of Canada received close to 1,000 complaints on this topic last year.

These companies are charging people up to $700 for outdated information on government finance programs. You don't have to pay this. You can get accurate, updated details on BC business programs for free in the 2010 Overview of Financing at Small Business BC's home page.  

When you are starting your business, promises of "inside information" on government grants can be very attractive. Unfortunately for BC entrepreneurs, there are currently only three public offices offering grants to you for starting your business: Canada Council, National Research Council, and the Investment Agriculture Foundation of British Columbia. Getting money from any of these offices requires a focused and promising business plan.

So unless you are an artist, farmer, or have a scientific related invention, there are no start-up grants available for BC businesses right now. There are loans available to help you get your business started but you'll need a well prepared business plan that includes a schedule to repay the money you borrowed.

I've talked to too many people, eight in the last month, that have asked about government grants AFTER they've purchased these products. So please come to Small Business BC's home page before you give your credit card number to a company for government grant information.

Mark.

The Business Development Bank of Canada(

The Business Development Bank of Canada(BDC) offers working capital for businesses that are developing and launching new products, adding ecommerce, or upgrading marketing and promotional strategies. BDC offers loans that can be repaid over an eight year period, customized repayment schedules, analyze marketing strategies, and review your financial management to maximize business profitability.

Another important resource for your business is the BC Innovation Council(BCIC) website. This organization provides networking opportunities, mentorship for technology companies, conference videos on entrepreneurship, case studies on innovative start-up companies, and resources that you’ll need to commercialize your idea.

A second important topic for innovative businesses is taking advantage of available tax breaks. You can claim up to 68% of your testing and experimenting dollars through a Canada Revenue Agency (CRA) program called Scientific Research and Experimental Development(SR&ED). You will have to track your development expenses and submit them with your annual tax return when your innovation is market-ready. For more information on this topic watch the September 10th webinar “SR&ED”. My experience with companies using this tax break come from the SMARTSTAGE company mentioned above and a video enthusiast who created Singular Software, a low-cost program to handle a number of video and audio tracks to produce videos from weddings and other memorable events. Watch the October 14th webinar on “Opportunities in Innovation” for more information on this and other innovative companies.

Thirdly, networking and learning from another’s experience is vital in developing your innovative business. The BC Inventors Society is an important centre to learn from other successful inventor’s experience developing their innovations and getting them to market. This office provides information on monthly meetings with other inventors, speakers that have successfully brought their idea to market, a website that provides notes from previous speakers, and news related to inventing.

For more information on obtaining funding for your innovative business contact: eversfield.mark@smallbusinessbc.ca

Necessity

Necessity, the mother of invention – George Farquhar

At Small Business BC, we often get queries regardiing support for developing business innovation. In BC there are a number of offices that can help with this. Small Business BC has organized a series of free webinars on funding innovation available at the Kootenay Association for Science and Technology (KAST)website. If your business is innovative and you are looking for information on financing, tax considerations, networking, and commentary on innovative BC businesses, read on!

The most frequent question on innovation is financing. Any program offering financing to start a business requires a viability or business plan. The National Research Council offers the Industry Research Assistance Program (IRAP) that can help finance innovative business ideas. Your idea does not have to be scientific nor technological to qualify for this program but it does have to be innovative and viable. Contact an Industrial Technology Advisor for more information. I have spoken to two clients recently that have received funds from IRAP that were not scientific nor high-tech. One company manufactured an innovative folding stage calledSMARTSTAGE while another was a groupon website called ethicalDeal. Whether your business qualifies for innovation funding will be determined by the IRAP industry officials. For more information on how other offices can help you with financing your innovative busiiness, watch the October 7th “Funding Innovation” webinar.

There are a number of offices that support development of innovative sustainable technologies. Sustainable Development Technology Canada has an SD Tech Fund and aNextGen Biofuels fund to support the funding gap between testing and the market place. The SD Tech Fund supports clean technology solutions: products and processes that contribute to clean air, clean water and clean land, and address solutions on climate change. The Province of BC offers funding under the Innovative Clean Energy (ICE) program to encourage development of clean energy sources and technologies. Since 2008, forty-one projects have been approved in thirty-seven communities across BC.

Who Provides the Financing?

Who Provides the Financing?

Finance is provided by an approved list of financial institutions including Scotiabank, the Bank of Montreal, HSBC and the Industrial and Commercial Bank of China (Canada).  For a full list of lenders visit theIndustry Canada website.

How does Industry Canada Help in the Process?

Although Industry Canada does not contribute to the decision making process of the lenders, it provides a reassurance to the lending banks and unions that they will share the risk of the loan and assure cost recovery.  This helps make otherwise unviable candidates viable for their lending programs.

 

Once a lender has approved a candidate for a loan they will notify Industry Canada of the agreement.

What are the Interest Rates?

The interest rate of the loan will be determined by the financial institution providing the loan.  Interest rates can be either fixed or variable.  

 

If the interest rate is variable, it cannot be more than 3% above the financial institution's prime lending rate. If the interest rate is fixed, it cannot be more than 3% above the financial institution's residential mortgage rate.

What are the Fees?

2% of the total loan value must be paid by the business owner to the lender as a registration fee.  This fee can be absorbed into the loan and paid through the loans scheduled payments.

What Other Terms are There?

Lenders are required to take security on the loan which can be in the form of the assets being financed.  Lenders also have the option to take an additional unsecured personal guarantee, which cannot exceed 25% of the total amount loaned.

 

Full payment of the loan will generally coincide with the expected economic life of the asset being financed, up to a maximum of 10 years. Monthly payments on the loan will typically be scheduled however specific details will be dependent on the individual lender.

How to Apply

To apply for the Canada Small Business Financing Program contact one of the approved list of lenders provided by Industry Canada and discuss your business needs with one of their financial officers.  The individual lender will review your business proposal and make a decision on your application.  Once the decision has been made, the 

 

Download Industry Canada’s information pamphlet or contact them at 1-866-959-1699 (toll-free) or csbfp-pfpec@ic.gc.ca for more information on the program.

Get yourself involved!

Get yourself involved!

If there are existing communities on topics related to yours, get those members interested in you – this is your chance to build relationships with like-minded individuals who care about what you care about.

 

Start asking questions around what type of community they’d find awesome to have. What kind of issues they’re experiencing in their industry, and who they think would be great members to have within the community.  Their responses will be extremely valuable when conceptualizing your community.  Not to mention, you’re building online friendships, so these people will more likely feel good about joining your community.    

 

You need these strong relationships to help attract new members and to keep them involved.  These people are also the ones who will most likely create new topics for discussion, launch polls, and interact with other members in your community. They are going to be your core group!

Build your community!

Ning.com offers a fairly cheap solution for building an online community; however, the quick and simple (and free) route is to start a Facebook or LinkedIn group based on your community’s theme. On the other hand, one of the most effective solutions is to set up a forum - Invisionpower.com is great if you already have an existing website, because it can serve as an extension of your site.

Invite more people to the community

Reach out to your core group – have them invite more people. You don’t really want to promote your community through advertising yet; you want to encourage direct referrals. These are always the most engaged individuals and it gives your community somewhat of an exclusive feeling, as it makes users feel as if they’re part of something – well because they are!

 

I would suggest your group be referral only until its gets large enough to open up to the public - usually 100 members. This is because it is important to focus on high engagement per member; you will be able to more spend time in discussion with each member individually before things expand.

Keep participation high

Break your community up into the most common topics and spin them off into different forums within the platform.  Put your most active members (most likely your core group) in charge of their own topics.  Watch each area grow as your core group expands their topics; this is where you will notice your community has become more self-sustaining.

Set up events and Meetups

Encourage your members to meet up with each other to support causes, celebrate accomplishments or just to get out and network. If you need a reason to meet, invite guest speakers to join your community and have them discuss different topics. 

 

This should get you on your way to building a successful, tight knit and engaged community of likeminded individuals. Your community will continue to grow, so continue to invite and motivate core members to moderate and manage their topics.  It’s a lot of work, but definitely worth it!