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Benefits of Selling a Business with Employee Benefits

Selling a Business Employee Benefits

When it comes to selling a business, there are many intangibles that can add value to the opportunity. One of these is if there are employee benefits involved in the sale.

Employee benefits not only provide tax benefits to a business owner, but in ensures that the businesses has attracted and retained only the best quality employees. When the business changes hands from one owner to another, an employee benefits plan can solidify the “company culture”, increasing a buyer’s confidence in the sustained performance of the company during and after the transition.

In a poll of employees of businesses that were recently sold, the first concern employees has was whether or not they were going to be able to keep their jobs, followed by their benefits. Buyers would do well to keep this in mind, in order to maintain the status quo.

(Note: Buyers should also perform their due diligence on any pension plans that may be in place).

Communication between business owners and their employees as to the total monetary value they’re receiving in benefits helps employees to understand their total compensation and rewards. If not yet implemented, the sale of a business would be a good time to begin implementing this communication strategy.

 

Advanced Details on How To Benefit from An Employee Benefits Program on a Business Sale

Besides the advantages of selling a company with an employee benefits program, the current business owner should also take advantage of all benefit programs available to them. One example is the purchase of past service if they haven’t contributed the max to a Registered Retirement Savings Plan (RRSP). Although it doesn’t happen often, there are instances where a business owner has re-invested in the company, or invested their own private investment portfolio, but not in a tax deferred compensation program, similar to an RRSP. In this case the Tax Act allows an owner, through an actuarial valuation, to purchase a type of RRSP as if they had been contributing to it all these years. They can do this via an Individual Pension Plan (IPP), and the amount of “past service” that can be transferred tax free into an IPP can sometimes be in the hundreds of thousands of dollars! If you might fall into this category, consult with your accountant or financial advisor.

 

Employee Benefits Help the Sale, and Protect the Employees

In most cases, employee benefits are just viewed as a cost of doing business by business owners. However, a quality employee benefit program can serve as a hidden “value added” component of a sale – similar to goodwill – that is sometimes overlooked by both brokers and sellers.

At the time of a sale, a seller should sit down with his insurance provider or financial advisor to ensure that the needs of the employees are met once the company has changed hands.

Capital Business Solutions

If looking to sell a business with employee benefits involved, and looking to maximize on the opportunity, contact one of Capital Business Solutions’ business intermediaries, here.

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