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Business Transfer: Selling to a Non-Family Member

14 September 2016 by National Bank
Man in a staple

As little boys working on their family's farm, Jeason and Steeven Nadeau were already dreaming of becoming dairy farmers one day. Passionate and dedicated, the Nadeau brothers often worked on neighbouring farms in the municipality of Sainte-Clotilde during their school years, earning a reputation as a couple of hard-working kids.

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During their time in college, the brothers began to think about the feasibility of taking on the family farm and realized that the business, with 25 kg/day of quota, was too small for both of them. This exercise did however confirm their interest in becoming dairy farmers and starting their own business.

After completing his studies in May 2011, older brother Jeason began working full-time at Ferme Mogagné, a dairy farm in Sainte-Clotilde. Sylvie Gagné, who had become the sole owner of the business in 2009 after the tragic death of her spouse, was running the farm while raising three young children alone. She wanted to keep the business going and, above all, pass on her love of farming to her children. As managing both the farm and her family had become a frantic juggling act, Sylvie started to think about selling the farm to someone from the local area, rather than auctioning it off.

Jeason recognized a great opportunity to acquire a dairy farm that would be large enough for both him and his brother. He asked Steeven, who was still a student, to come and work on the farm with him on weekends. After 17 months, the Nadeau brothers felt confident in their ability to work together and sure of their interest in taking over the business.

Sylvie noted the pair's determination and realized that their reputation was well deserved. She therefore agreed to embark on the process of selling part of her business to them. She wanted to keep the land that her children's great-grandfather had owned in order to build a house and stables. The farmland she kept would be leased to Ferme Mogagné.

The business transfer process

The first thing Sylvie did was have her business valued to determine its current worth. She then consulted a tax specialist about her options for selling the farm to someone outside the family. Sylvie took advice from family and friends to choose between the options suggested. Her priority was to achieve a win-win outcome, so she opted for a share sale rather than an asset sale. The price was set so as to minimize the tax impact while ensuring the same income that an auction would have produced. For this transaction, the experts in National Bank's Business Transfer team were able to devise a financial structure with flexible, non-traditional repayment terms that would allow the business to find its feet during the first five years. This flexible financial structure, exclusive to National Bank, would help Steeven and Jeason cope with the unexpected events that can crop up during the start-up process, enabling them to hit their stride without too much financial pressure.

The Nadeau brothers consider themselves lucky to have had the support of their parents: "Throughout the process, our parents asked us questions to make sure that we were making a good decision. Because we were young, they wanted us to understand what we were getting into. Most of all, they wanted to make sure that we were going to get along well! In addition to the moral support, they supported us financially. Our parents are extremely proud of us. Whenever our father gets the chance, he comes to work with us!"

How do Steeven and Jeason see their future? "We would like to grow the business by buying quota as our production increases. For now, we're focusing on quality before thinking about quantity. We're aiming to achieve a certain quality of life through the business. The farm is a real family endeavour. Everyone works on it in their spare time."

Jeason and Steeven are also very grateful to Sylvie for her helpfulness and open-mindedness!

About the business

  • 44.66 kg of quota
  • 73 hectares of farmland and 47 hectares of woodland with a sugar bush with 3,200 taps
  • A pig house with a capacity of 350 finishing pigs
  • Eligible for the 5 kg/day quota loan through the Young Dairy Farmers Assistance Program

Jeason and Steeven's advice

  • Take time to get to know the seller and establish a relationship of trust.
  • Go at the seller's pace to facilitate the transaction.
  • Express interest in buying the business directly from the owner, without going through an intermediary.
  • Get advice from specialists to make an informed decision.
  • Ensure you have the resources to achieve your objectives.

Sylvie's advice

  • Be willing to sell to a third party.
  • Accept that your successors may be able to do things better than you.
  • Consult the right specialists.
  • Share financial information and be transparent.
  • Remain available to share your knowledge with your successors.
  • Give your successors responsibilities during the transition period to allow them to demonstrate their determination and management skills.

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