After putting years of hard work into your farm, it is understandable that you want to get the highest value out of it on a sale.
One key to receiving top dollar is planning and ensuring essential items are properly looked after.
Planning your corporate structure
Having a tangled web of corporations is typically going to cause more difficulty when trying to sell your farm and will increase costs. Try to keep it simple. Here are a few options for structuring your farm:
- Consider splitting segments of the farm into different companies, such as splitting the custom-spraying business, cattle operations and farming operations into their own companies. This allows you to potentially sell one business at a time to different purchasers.
- In large operations, consider separating blocks of land into separate corporations. This way, a potential buyer could finance the purchase of one parcel initially, with the possibility of buying more later. With the flexibility to sell different parcels to different buyers, you can make the land more marketable.
- Remove any assets not needed in the farm, such as excess cash, investments or the home acreage, from the company carrying on operations because it may be difficult and expensive to do this later.
- If there are multiple shareholders in your farm, review or consider implementing written agreements to help govern future decisions, including what happens if one wants to sell their interest. This may help avoid future conflicts between shareholders and costly legal battles.
Strengthening your farm operations
Although the fair value of the land is usually the most influential factor in the selling price of a farm, in some instances, the appropriate business structure and earnings potential of future operations could influence the price of shares in your farm corporation.
This may be the case if there are other operating segments such as trucking, custom spraying or custom combining. For these businesses, consider implementing long-term agreements for key business relationships.
For vital employees, customers and/or suppliers, having a written agreement that requires them to continue to work with the company in the future gives a potential buyer some comfort that the operation will continue successfully.
Another important area is to maintain good account records. Having copies of all tax returns and assessments will show that the company has been appropriately managed. It reduces the risk that the buyer will be on the hook for late taxes or other reassessments.
In addition, having detailed and organized accounting records allows a potential buyer to easily review specific information, such as annual capital expenditures or management wages. Having financial statements with a review engagement prepared by a qualified accounting professional also provides the potential buyer with comfort that the statements are likely accurate and complete.
One of the most important factors in a profitable sale is having a strong track record. A good, long-term financial history with appropriate records gives comfort to a potential buyer. In any situation, seek professional advice for a potential sale of your farm corporation.
Colin Miller is a chartered accountant and partner with KPMG’s tax practice in Lethbridge. Contact: colinmiller@kpmg.ca.
