- Have a valid reason to sell – But try not to disclose personal information that could weaken your negotiating power.
- Don’t wait until you’re under pressure to sell for economic or emotional reasons – This could force you to accept a poor offer.
- Gather essential information – This may include:
- Three years’ financial statements and tax returns
- Lists of fixtures and equipment
- Lists of employees and customers
- Copies of leases for premises and equipment
- Franchise agreement
- Lists of loans and payment schedule
- Names of professional advisors (for example, business broker, qualified legal advisor and tax specialist)
- Have financial statements audited or reviewed by a professional for the sale – This will increase potential buyers’ confidence in the accuracy of the documents you provide.
- Consider hiring a business broker to help you identify a purchaser – A broker can act as your agent while you’re looking for a purchaser and during the negotiations.
- Maintain confidentiality – Don’t divulge information about your day-to-day business activities that can be used by competitors. Ask a potential buyer to sign a non-disclosure agreement and provide financial information only to potential buyers who have paid a deposit.
- Don’t let the business decline while you’re preoccupied with the sale – Maintain your premises, inventory and normal business hours.
- Learn to judge whether a potential buyer is serious – Don’t waste time on tire kickers.
Assemble a team of experts to help you
| || |
Business planning quick tip
Keep your business going strong right up until the time you sell it. The tendency among many business owners is to start winding things down as they approach their retirement date. However, an actively managed business that’s still growing will be much more attractive to potential buyers and will likely fetch a higher selling price.
Hiring a business broker
- You can maintain confidentiality during the early stages of the sale process and let the broker deal with potential purchasers on your behalf until they identify an acceptable prospect.
- Potential buyers may be more comfortable talking to an intermediary.
- Some brokers specialize in a particular industry and may have contacts at corporations that may be 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.
Tax minimization strategies
- If the purchaser is buying the shares of your business, you may be able to claim the capital gains exemption if your shares qualify as QSBC shares
- Consider the pros and cons of setting up an IPP or an RCA, which may help you defer some of the tax on a future sale.
- If you have a prospective purchaser of your unincorporated business, consider incorporating and selling the shares to utilize the capital gain exemption.
- If the shares of your business are sold, 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 the sale isn’t imminent and the value of your business is increasing, an estate freeze and reorganization of your corporation may allow future capital gains to accrue to other family members and possibly multiply the use of the capital gains exemption.
- If you pay yourself a retiring allowance before the sale, you may be able to transfer a portion to your RRSP, tax-deferred, if you had years of service before 1996, irrespective of your available contribution room.
- Use some of the sale proceeds to make a charitable donation in the year of sale. The donation tax credit may help you minimize the tax on any capital gains realized on the sale. If your donation is expected to be at least $25,000, then consider the benefits of setting up your own charitable foundation in the year of sale through the RBC Charitable Gift Program.
- Consider receiving the sale proceeds over several years using a capital gain reserve to spread the gain and the resulting taxes payable over a longer period of time.
- If you are selling to management or employees, consider setting up a share purchase plan to facilitate the transition. This type of plan can help you ease into the transition and allow them to fund the purchase over time.
| || |
The RBC Charitable Gift Program is specifically designed for individuals and families wishing to support charitable causes in a meaningful way, without the time and cost associated with establishing a private foundation. It is an easy and convenient way to support charitable causes you care about, today and in the future, while receiving important tax benefits. Through this program, you can make initial and ongoing contributions to a charitable gift fund administered by the Charitable Gift Funds Canada Foundation (CGFCF), one of the leading charitable foundations in the country. Ask your RBC advisor for our brochure on the RBC Charitable Gift Program and how this form of charitable giving may be right for you.