Before buying or selling a business, there are a number of things that need to be done. Sellers need to determine the value of the business, think of the tax considerations, and find a buyer. Buyers have to conduct a thorough evaluation of the business for sale and determine if they should be buying assets or shares.
If buying a franchise, there are additional complications. Franchisees will need to be aware of any conditions in their franchise agreement around a sale. For example, the franchisor may need to approve the buyer as well as set and approve the purchase price. Buyers will have to complete training and pay a franchise or transfer fee. In addition, a potential buyer will have to understand the franchise agreement they’re entering into, including their territory and any opportunities for additional units or rights of first refusal.
One evaluation will include conducting an assessment of the bookkeeping and payroll situation to find out exactly what they are buying. There also needs to be a plan in place and numerous deadlines to meet in order to stay on track when handing over the ownership and responsibilities.
It’s the owner’s responsibility to ensure that bookkeeping records are kept up to date and saved. Some of these accounting and financial documents may include: financial statements, general ledger and software, income tax returns, GST/HST/PST returns, customer invoices and sales, purchase receipts, bank statements, credit card receipts, work orders, delivery slips, and all correspondence that support any transactions.
Filings must also be compliant will the Canada Revenue Agency (CRA) and any provincial or territorial ministries. Any fines should be paid off or disclosed before the deal is signed. New owners that purchase a company’s assets aren’t responsible for any unpaid fines. Instead, it’s the owner or directors who are selling the business that must pay up. However, if new owners buy shares of the company, they are on the hook for any unpaid fines. That’s why due diligence is so important for buyers.
Buyers purchasing a franchise will need to be aware of any franchisor requirements with respect to bookkeeping. For example, there may be timelines for providing financial information to the franchisor on a monthly basis.
Payroll can also be difficult for buyers and sellers because they may not know the rules or are unfamiliar with them.
For instance, a record of employment (ROE) needs to be produced for every employee even if the new business is keeping the current staff on payroll. And vacation payouts will be the responsibility of the buyer or seller, depending on their agreement, either honouring employee vacation or leaves accrued to date, or providing a mass payout. That’s something that needs to be discussed between the buyer and seller before the deal closes.
If the previous owner closes their business account with the CRA and the new owner has to register and get a new CRA number, all employees will need to get T4s with the old business number on it as well as T4s with the new number. If the business and the business number are being closed, the new owner will need to issue T4s and T4As within 30 days of the closure. For businesses with a high staff turnover rate (such as restaurants), it can be stressful to complete in time if documentation isn’t up to date.
Avoiding payroll and bookkeeping mistakes
Payroll and bookkeeping can be the most important functions of any business. Trying to integrate and set up these functions can be both difficult and complicated. If there are any mistakes made along the way, employees may become upset if they’re not paid on time. And not issuing T4s on time can lead to penalties imposed by the CRA.
BDO can help
We help owners outsource their payroll and bookkeeping so they can focus on running their business. Our clients get unlimited ROEs and T4s at no additional charge. Contact our Corporate Payroll Services or Cloud Bookkeeping Services professionals to learn how we can support your business.