Bakers Journal

Ask the Business Advisor

September 27, 2010
By Bakers Journal

Each issue of Bakers Journal will feature a Q&A where you as a reader can ask a business advisor anything, and your question could be featured in the next issue!
To ask your own question click the button below!

Bakers Journal October 2010 Q: I found a business that I want to buy. The vendor wants to sell me the shares but I’ve been advised to purchase only the assets (i.e. inventory and equipment). What’s the difference?
A: The reason the vendor may want to sell you the shares is because they may be eligible for a capital gains exemption. However, it is important to recognize that when you buy shares, you not only assume all the assets (both tangible and intangible),you also assume all liabilities, even those that have not yet been identified ,such as tax liabilities as a result of prior year reassessments, warranties, guarantees, liens, lawsuits etc.  For this reason, careful consideration of your options should be made with your business advisor.
Wayne Gelb is a partner in the audit and assurance practice and Bruce Roher is a partner in the valuations department at the Toronto office of Fuller Landau LLP.

Bakers November 2010 Q: I’m ready to look for financing. What’s the best way to go about it?

1. Prepare good reasons for why you need the capital.
A growth story, a product differentiation, geography move … there has to be a sound business reason for  why you need the financing and it should be something positive, rather than negative, like to refinance or restructure. Figure out what you require and for what purpose.
2. Have a strong and realistic financial forecast
If you're expecting revenue growth of 5%, what will the business look like if you achieve 2%, or even negative growth? Does it still make sense? Will the lender still be comfortable? Does the forecast factor in reasonable working capital and capital expenditure needs to realize the revenue growth assumption? Sometimes I advise businesses to seek professional advice to build a model or review an existing model to identify potential issues or red flags before going to a lender/investor.
3. Consider getting help
Retain an advisor to negotiate on your behalf, attend meetings or introductions with you so they're looking after your interests and making sure you come across in the best possible light.
4. Build and maintain trust
It is important to exude confidence. Lending is about an  ongoing relationship. An advisor can help you anticipate issues the lender may have and develop appropriate responses to their concerns.
5. Be honest with your lender/investor
Be candid and transparent. If you think your business could be faced with some short term problems, provide bold transparent disclosure., It's in your best interest when your lender/investor is informed. Keeping problems hidden doesn't bode well for you, especially if the lender/investor had any doubt about you initially.


Jonas Cohen is the Managing Director of Fuller Landau Consulting Inc. a member of the Fuller Landau LLP group of companies.

Bakers Journal December 2010 Q: I am planning to get financing from the bank to expand my product line.  I’ve been told I need to have a report prepared by an accountant included with my financial statements. What is the bank looking for and what does it mean for my business? 

A: Lenders will often require businesses to obtain assurance from an accountant on their financial statements. This assurance adds credibility to the implied assertion by a business’ management that its financial statements fairly represent its position and performance to the business’ stakeholders (i.e. owners and lenders). This assurance is provided in a report from an accountant or accounting firm that accompanies the financial statements. There are two types of assurance reports that lenders could ask for, they differ in the amount of assurance offered.

Audit Report
Financial statements (including the balance sheet, income statement, statement of cash flows and note disclosure), prepared by management, are audited by an accountant/firm and are accompanied by a report from the accountant/firm that states the audit was made in accordance with Canadian generally accepted audit standards and represents an opinion of the financial statements based on examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. This report provides the highest level of assurance (not absolute) to lenders and other users of a business’ financial statements.

Review Report
Financial statements (including the balance sheet, income statement, statement of cash flows and note disclosure), prepared by management, are reviewed by an accountant/firm and are accompanied by a report from the accountant/firm that states the review was made in accordance with Canadian generally accepted standards for review engagements and accordingly consisted primarily of enquiry, analytical procedures and discussion related to information supplied to them by the company. A review does not constitute an audit but it does provide a moderate level of assurance and is used by many small business lenders.

Given the magnitude of the work involved and costs associated, it is important that your business advisor work with you, your potential lenders and any other users of your business’ financial statements (i.e. buyers or unrelated owners) ahead of time to discuss what level of assurance is most appropriate in your circumstances.

Bakers Journal April 2011 Q: I own a bakery and we just doubled our operations by adding a frozen products line.  How can I manage and control the risk of inventory loss and theft?

A: There are several internal controls that I recommend.  First, an electronic monitoring system both inside the plant and outside at the receiving/shipping doors can be a strong deterrent. 

Next, I recommend a purchasing a good wireless inventory management system.  Warehouse personnel can then use wireless handheld devices for receiving, picking, packing, shipping and most importantly – inventory movement and cycle counts.  Bakeries require a robust inventory control system to help manage the unique challenges of a bakery including rapidly changing production planning, operational capacity scheduling, production expiry dates, batch yields and the variability of ingredients. An effective inventory system will improve management control in these areas.  

Finally, there should be frequent inventory cycle counts on subsections of inventory, with management involved in following up on discrepancies. 

Bakers Journal  Q:  My business incurred a loss for the second year in a row and we are now in breach of our financial covenants with our operating lender.  What can we do?

A:  Be proactive –  start by performing an honest, detailed assessment of your business operation –what has changed over the last two years to cause the losses – revenue declines, input cost increases not passed on to customers, manufacturing inefficiencies, product mix/product margin changes etc.  Conclude on the changes required to return the business to profitability and prepare a business plan that shows, on a realistic basis, how you plan to change the way your business operates and cure the covenant breaches.

Due to the likely impact of the losses incurred on your businesses’ liquidity, this may not be possible without restructuring or renegotiating some or all of your creditor obligations and payment terms. Determine what indulgences are required, and from whom. Can you accomplish what is needed through direct negotiations with creditors on an individual basis, or are you better served utilizing the available formal legal processes (The Bankruptcy and Insolvency Act or Companies’ Creditor Arrangement Act) to accomplish what is needed to assist to recapitalize the business?

Once you have completed the above assessments approach your lender to review your findings and request ongoing support as you rectify the operating and structural model of the business.

We find that by taking a proactive approach to the issues at hand, you will generally meet with more success as there are more options available earlier, than later in the process.

Gary Abrahamson is a partner in the Restructuring and Insolvency practice of Fuller Landau LLP. Gary can be reached at .

Bakers June 2011 Q: I own a chain of pizza stores. I would like to retire in five years. My son has been the VP of sales for the last two years, but I’m not sure that he has the skills to be my successor. Do you have any suggestions?

A: As a first step, you must come to terms with whether or not your son has the necessary skills, experience, and respect from others to assume the leadership of the business. One option to give you time to make this assessment is to hire an interim manager.

Interim managers can handle many responsibilities to keep your company running during the succession process. This individual can act as a mentor to your son, help you with your departure process, mediate conflict, and manage operations. Further, an interim manager’s objectivity may be critical in the event that you and your son do not see eye-to-eye.

Before you begin interviewing candidates, develop a game plan. For instance, define the interim manager’s responsibilities and goals. Determine how long you’d like him or her to work in the company as well as what skills and experience are required for the job. When hiring an interim manager, look for attributes, such as:

Experience managing a company of similar size;
A track record of helping family businesses successfully transition to the next generation; and Good teaching skills and a fair demeanor.

In evaluating your son as a possible successor, you should consider the following:

How will this decision affect other children who are not active in the business?
How should the opposing interests of active and non-active children be protected?
Are there other children who are not yet active in the business?
How will your son be remunerated?

Giving these questions careful thought will help make the succession process a smooth one.

Bruce Roher is a partner in the business valuations practice at the Toronto office of Fuller Landau LLP, Chartered Accountants.  He can be reached at or at (416) 645-6526.

Bakers June 2011 July 2011 Cover – Coming Soon Q: Someone mentioned to me that my bakery business may be entitled to Scientific Research and Experimental Development tax credits.  Is this true?  I thought only technology companies were entitled to these credits.
A: Yes, your bakery business may be entitled to Scientific Research and Experimental Development (“SR&ED”) tax credits if it is engaged in qualifying SR&ED activities.  The SR&ED program is very broad and meant to benefit many industries, including the baking industry.  A company does not need to invent the latest gadget to qualify for the SR&ED tax credits.  Qualifying SR&ED can include the cost of experimental development to create new, or improve existing, products or processes, including incremental improvements.
The SR&ED program is particularly beneficial to qualifying small and mediums sized private Canadian companies because the SR&ED tax credits are higher than they are for other companies and the tax credits are refundable.  The SR&ED tax credits are a great way to help fund a company’s SR&ED activities.  Proper tax planning can ensure that a company qualifies for the higher SR&ED tax credits.
Derek WegerDerek Wagar is a Senior Tax Manager with Fuller Landau LLP and is responsible for rendering Canadian tax compliance and tax advisory services to corporations, individuals, trusts and partnerships.  If you have any questions on the SR&ED program or any other tax related inquiry, please send it to
bjmar12cover Q&A By Jeanette Hyde, Fuller Landau

Q: I’m worried that if I implement job profiles it will encourage my employees to do even less and tell their supervisor “it’s not my job” if asked to do something different. Don’t job profiles cause more problems than good?

A: It all depends on how the process is communicated and utilized. If job profiles are used solely for discipline, yes you may get a backlash. If however they are also used to train, encourage, motivate, promote and reward, you will achieve the desired result:  buy-in and improved productivity.

There are also ways to get around the “it’s not my job” syndrome. Firstly you can include the caveat – required to perform other duties upon request of the manager to help the department/company meet its goals and objectives.  In situations where employees are expected to rotate through different jobs, it is actually even more necessary to post the requirements for the different positions (I find a matrix format useful for easy reference and comparison) as employees may not perform each job function to equal satisfaction and some training or coaching may be required. As always, the key to success is communication and involvement.  Explain why you are implementing the job profiles and implement them consistently and fairly for all employees across all departments. 

Also, realize it takes time for change to become the new norm; take the time to address concerns or fears in a neutral tone and manner and diffuse any potential misconceptions.  It’s the worth the effort in the long run.

Jeanette Hyde is a human resources consultant at Fuller Landau.  She can be reached at (416) 645-6500 or by email at

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