Selling or transitioning your company is one of the most significant financial, professional and emotional decisions you’ll face as a business owner. Whether you plan to sell to a third party, pass the business to the next generation, or transfer ownership to key employees, a solid financial strategy is essential for a profitable and seamless process.
Our experience has taught us that preparation, trusted guidance and adequate time are the most critical factors for success. This strategic combination ensures the most favourable outcome at the best price and terms, grounded in foundational financial best practices outlined below.
Start Early
A successful exit requires time to execute effectively, so start your journey 3 to 5 years before you’d like to cross the finish line. Begin by asking yourself key questions about how you would like to monetize your company’s value and who you envision as a buyer. Assemble a team of trusted advisors, including accountants, corporate lawyers and exit planning specialists. Allow time to train successors, transfer responsibility gradually, and organize your business in the most tax-efficient structure.
Ensure Financial Accuracy and Regulatory Compliance
Potential buyers will closely examine your financial records, so it’s crucial to ensure your financial records are in order and that your financial statements and information accurately reflect the financial position and operations of your company. It is also critical that all of your tax and regulatory filings (e.g. corporate tax, payroll source deductions, GST, PST, Worksafe BC) are up to date and that your balances with the taxing authorities are current.
Purchasers will generally require financial statements and information for the immediately previous three years. Financial information and statements prepared by a Chartered Professional Accountant (CPA) will provide confidence to potential buyers that your financials accurately reflect your company’s health. Highly organized and accurate financial records will also provide readily available, verified information that saves time, reduces friction during negotiations, and diminishes the risk of post-sale disputes.
Understand the True Value of Your Business
Before negotiating with potential buyers, you may want to obtain a fair market valuation for your company. This will help determine an equitable price and highlight areas for improvement that could enhance your company’s value. If your transition plans involve an intergenerational transfer of shares to family members or an estate freeze, you will also need to establish a fair market value for your company at the time of the transfer.
Understand the Tax Implications
The tax implications of selling or transitioning a private company in Canada can be quite complex and depend heavily on the strategy you choose, as well as on whether your company qualifies for the lifetime capital gains exemption. How you structure your deal can be financially consequential. For instance, selling assets versus shares can yield very different tax consequences. Factors such as payment schedules, family succession plans, and management buyouts create distinct tax scenarios.
Selling or transitioning your private company is not a task you should undertake alone. Working with a qualified tax professional can help you save a substantial amount of money, depending on how the transaction is structured. This expert guidance is crucial for optimizing your business goals, avoiding costly mistakes, and ensuring an outcome that could change the course of your—and your family’s—future. We’re here to help. Connect with us today.
Disclaimer
The information contained herein is general in nature and is based on current tax laws that are subject to change. It is not, and should not be construed as, accounting, legal, or tax advice, or an opinion provided by Vantage Point Chartered Professional Accountants to the reader. This material may not be applicable to, or suitable for, specific circumstances or needs and may require consideration of other factors not described herein.
