Transcript: When to consider exiting a business — CIBC Family Office Webinar Series

[Soft music plays.]

[Background shows people seated at a desk, with a laptop, calculator and tablet, and a number of scattered documents.]

[CIBC logo, CIBC Private Wealth
When to consider exiting a business
CIBC Family Office Webinar Series]

[Trevor Gough
Managing Director and Head
CIBC Mid-Market Investment Banking]

Clients are often very surprised just at the forensic examination that a buyer is about to conduct on their business.

[Two people at a desk, pointing at different graphs and charts before them on the table. A calculator and a tablet are also on the desk.]

The process that we run, a competitive process, where we get buyers to the table.

We're sharing a limited amount of information with a number of buyers, and as we go through the process, we're reducing the number of buyers and expanding the amount of information that we're providing.

[Three people standing up and talking, while holding paper documents and a tablet. The person holding the papers points to something on the tablet screen.]

[A busy meeting room. A man sips coffee. Someone points to data on two different computer screens.]

But at some point, we're going exclusive with one buyer. And as one buyer said to us last week, that we just went exclusive with them, "Get ready, our army are coming".

[A man looks at data on two large screens, then takes notes.]

And there's a huge amount of people who are involved in the data room. Clients are often just shocked by the amount of due diligence that buyers will do: financial, legal, HR, IT, cybersecurity, ESG (environment, social, governance), insurance, pensions, benefits, just a huge laundry list to get ready for a sale.

[A woman, then a man, are both shown in separate rooms, looking at computer screens.]

[A person points at bar graphs on a sheet of paper. Another person walks, wearing a suit and scrolling on a mobile phone. A third person looks at a phone and takes notes with a pen on paper.]

[A screen shows data being protected. A lake and some solar panels. A busy meeting room. Documents on a table, with space for signatures.]

[A man meets with an older couple. Three people look at data on a screen and some papers and talk to each other.]

We share these lists. We know the questions that are coming, and we say, “Open an online data room, and get ready for it now and be prepared.”

And then part of the being prepared also is if you have personal redundant assets in the company, get them out. We want the story to be as clean as possible prior to going to sale. And that’s an important part of the preparation.

[Tax planning for the sale of a business]

[Jamie Golombek
Managing Director, Tax and Estate Planning
CIBC Private Wealth]

So, one of the things that we would look at in the context of discussions about tax planning for a sale, is making sure we pay out the full capital dividend account, prior to a sale, to be able to strip assets out of the company on a tax-free basis. That's one thing we could do.

There's also something called safe income, which is retained earnings, effectively, that have been taxed inside the corporation. Those can also be paid out, potentially as a dividend prior to sale.

So, there’s a number of things that one can do. And in fact, there are even more sophisticated strategies that some of the accounting firms or law firms have been implementing for some clients, which would involve you really speaking to them, hopefully before you have a deal.

[Tall buildings seen from below. An elevator going down in a modern, sophisticated building. Two people meet and talk, then shake hands.]

[Another handshake. Someone writing on a sheet of paper with a pen. A busy meeting room, as a man makes notes on a whiteboard.]

[Someone speaks before an audience.]

There's not a lot that they can do for you once you've signed a deal. Your company is being sold, or it's already been sold.

But that being said, we've had some success with some of the major accounting firms, some of the smaller firms as well, on the legal side, and the accounting side, where they have some strategies that could even reduce your effective capital gains rate from, let's say, a 25%, 26% rate, to half of that. It's not a permanent savings, it's a deferral, but it is something that we've seen done certainly for some clients.

And again, the message I would say is, you know, we're not tax advisors at CIBC, but we work very closely with tax advisors. So, be sure to speak to your own accountants and lawyers about some of this presale planning, to see if there are some more sophisticated strategies out there available to you.

[Cash flow after selling a business]

[Susan Wood
Director of Wealth Strategies
CIBC Private Wealth]

So, first point I'll touch on is cashflow post-sale. So, entrepreneurs, when selling a business, they often struggle with the change from owning a business, where they feel they're in control, they're earning a steady and predictable income. To post-sale, no longer having a cash flow generating entity. They struggle with what it means to live off of the proceeds, and how to replace their business cash flow.

[A man in a suit walks down a city sidewalk, holding a tablet.]

[Someone sits at a desk, pen in hand, and looks over two paper documents with data on them.]

[A man stands near a building in a city. Camera pans around him as he stands and thinks.]

Understand that more often than not, this is not an intellectual struggle. They actually know they have enough, more than enough, but it looks and feels very different.

So as a result, we work with the business owners to help them visualize their wealth in this new form, and what it's going to look like going forward from a financial perspective.

So, we might work closely on understanding their personal needs, lifestyle needs, doing some cash flow planning long-term.

[Two people walk and talk outside a building. A woman walks alone near a city centre.]

[Two people on a sailboat. Two different meeting rooms, each with a couple of people sitting and talking.]

And to really help them understand the sum of capital that they need to comfortably address their lifestyle needs going forward.

And help them understand how to draw down funds, and which sources to draw down, in as tax-efficient a manner as possible.

[Speak to your advisors to learn more about Family Office]

[CIBC logo. CIBC Private Wealth

CIBC Private Wealth services are available to qualified individuals.

The CIBC logo and “CIBC Private Wealth” are trademarks of CIBC, used under license.]