Options for Exiting A Business

When it comes to closing or exiting a business, there are many factors to consider. You may be asking yourself:

  • Is this the right time?
  • Do I sell externally or internally?
  • What are the personal tax implications of selling?

We explore some of these topics below to help guide you in your business exit decision. If you have any questions on the content presented, please reach out to your accountant or contact McNabb Lucuk LLP by phone at 780-539-3400, or email [email protected] or [email protected] to discuss the specific details of your situation

Selling

Your business is an asset that can be bought and sold on the open market with its value more complex than assets and liabilities. 

As with any other commodity, timing the sale of your business can significantly determine what the market is willing to pay. Seasonal businesses may list well at the end of a high season but may not sell until closer to the new season opening when revenue streams are more likely for the new owners. You’ll also want to consider what businesses and sectors are in demand when it’s time to sell. Strategically timing the sale of your business with a preferable industry or market trend could lead to higher demand and advantages for both the buyer and seller.  

It may also be advantageous to take advantage of growth or upgrading opportunities that, if successful, have the potential to increase your business’ market value while reducing perceived risk of expansion for new owners. You’ll also want to consider how much value your brand adds to the sale. 

Who’s Buying?

You might consider selling your business on the open market if you are looking to step away from the business. This is often the case when owners want to retire or explore new ventures. Preparing a business for sale on the open market can be as simple as updating and maintaining all financial records, ensuring accurate asset inventories and documenting business processes. How well your business is organized and market ready can make the sale more appealing to potential buyers. 

Consider selling your ownership shares in your business if continuity of the business is important to you or if other owners are not ready to sell. This can be done through a staff, management or investor buyout. This can allow for a smoother ownership transition between the buyer and seller while maintaining daily operations of the business. Value paid to the seller may be lower but is still heavily dependent on current market conditions however, selling to employees can create longer timelines for realising the funds from the sale.  

Transferring

Transferring your business to a family member or other loved one is often part of small business succession planning. This approach can depend heavily on the sellers timeline for exiting and needs for withdrawing capital from the business. 

With strategic planning, your business may be able to take advantage of exemptions and strategies to make the business transfer more tax efficient. 

How is a Business Sale Taxed?

This is a complicated question that depends on the nature of the sale process used and the portion of the business that was sold when the owner exited the business. In general, the seller needs to consider the after-tax return on the proceeds of the transaction. 

If transferring the business through a sale or as a gift, the Canada Revenue Agency currently taxes the capital gains based on fair market value. There may be capital gains exemptions and tax deferrals available depending on the sale structure being considered.  

Starting January 1, 2022, Bill C-208 becomes law and may allow family-owned businesses to be passed down with reduced tax consequences. 

Before you sell, be sure to speak with experienced professionals, such as an appraiser and your accountant. Here at McNabb Lucuk LLP we can help guide your decision with valuable insight into your business’s market value and support during the sales process.

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When it comes time to leave your business, selling or transferring are the two options that are top of mind. Selling to staff or transferring to a family member are common approaches for owners looking to maintain the business structure and operations but may result in a slower exit. For owners looking to exit more quickly, depending on the current market conditions, it may be more profitable and faster to sell on the open market.  

If you’re considering exiting your business, early preparation and strategic planning can save you time, money and taxes. Learn more in our latest blog.