Will you sell your business?
Many business owners in Canada will exit their business by selling to a non-family member. However, only a small percentage of owners planning to transfer their business in the near future have a succession plan.
If you're selling your business outside the family, bear in mind the factors that can make it more attractive to a prospective purchaser. It will be easier to find a buyer for a business that has potential for future growth. Other corporations in your business sector may also be interested in acquiring your business with a view to improving profitability.
Valuation is of central importance. You can get an indication of this by researching the selling price of similar businesses in your area.
To help you find a purchaser and obtain a better offer:
Have a valid reason to sell
Don't wait until you're under pressure to sell for economic or emotional reasons
Have financial statements professionally prepared for the sale
Consider hiring a business broker to help you identify a purchaser
Don't let the business decline while you're preoccupied with the sale
Learn to judge whether a potential buyer is serious
Assemble a team of experts to help you
Your team of experts should include an experienced tax advisor to ensure you have planned your sale in the most tax-efficient manner, a qualified legal professional to prepare legal documentation, a business valuator and a business broker to help you find a purchaser.
Hiring a business broker
Give your broker information about your business and then follow their advice. Here are some factors to consider:
Potential buyers may be more comfortable talking to an intermediary.
Some brokers specialize in a particular industry and may have contacts at corporations potentially interested in buying your company.
Brokers' fees are usually a percentage of the final sale price. Weigh this expense against the benefit they provide before you hire them.
A professionally prepared document, prepared by your broker, summarizing your business for potential purchasers can be invaluable and may help you avoid potential litigation and suggestions of misrepresentation if the purchaser finds the business less successful than expected.
Tax minimization strategies
The following strategies may help you minimize the tax consequences when you're selling your active business to an outside buyer.
Consider the pros and cons of setting up an Individual Pension Plan or a Retirement Compensation Arrangement, which may help to defer some of the tax upon a future sale.
If you have a prospective purchaser for your unincorporated business, consider incorporating and selling the shares to utilize the capital gains exemption.
If the shares of your business are sold, then consider reinvesting some of the proceeds in the shares of another active Canadian private company in the year of sale or within 120 days after the year of sale in order to defer some of the capital gains tax on the sale.
If your sale isn't imminent and the value of your business is increasing, an "estate freeze" may allow future capital gains to accrue to other family members and possibly multiply the use of the capital gains exemption.
Consider receiving the sale proceeds over several years using a capital gain reserve to spread the gain over a longer period.
This article was supplied by Colin MacAskill, a vice-president and an investment advisor with RBC Dominion Securities Inc. This article is for information purposes only. Please consult with a professional advisor before taking any action based on information in this article. Colin welcomes your calls on his direct line at 604-257-7455.
