Three key steps to the exit door for business owners

A successful business succession plan hinges on transferring ownership, raising the business’ value and being sharp on tax strategies

Cindy David Financial Group Ltd.
February 7, 2019

Business handshake

There are a myriad of ways that a business owner can sell a business.  This column highlights some of the various ways I’ve seen business owners structure the sale.

Three key reasons to have a plan for the succession of your business are: to help you make decisions about ownership; to maximize the value of your company at the time of sale; and to take advantage of tax strategies that are changing constantly in today’s world.

Ownership decisions: Here are some things to think about well in advance of the sale date.  Should you sell slowly over a number of years or try to find a buyer who can afford to buy in a single year?  Should you sell to management?  If so, do they possess the leadership skills required to run the business and the aptitude for the risk of being an owner?  Not everybody is built to be an entrepreneur.  When a single owner sells to multiple owners, there needs to be clarity on decision-making that didn’t exist before. And what if you’re selling to family members who don’t get along with employees or other owners? There may be an opportunity to work through a lot of these issues in a positive way if enough lead time is given.     

Maximize the value of your business: Anything worthwhile usually takes time, and this is definitely one of those things.  Making sure your financial statements tell a good story and that you can make a case for consistent or improving cash flows, addressing the longevity or turnover of employees and “cleansing” the company to make sure you have access to the capital gains exemption at time of sal, if needed, are all important.  

Sometimes business owners wait until they are ready to wind down as they approach retirement, and it shows in the bottom line.  Selling at the top is not the easiest thing to do, but it can make a big difference to your bottom line when it comes to retirement. 

Sometimes companies have grown organically and the owner ends up with real estate assets inside the operating company that they are hoping to sell. Recently a client sold his business, and the real estate is for sale for four times the value of the business. Selling the real estate will make a significant difference in spending, and gifting to children for that matter.  Then there’s timing the market: if you’ve grown your business over your whole working life, what happens when you cash out at a time like now when markets are correcting? There is such a thing as “the unlucky years to retire” that can affect how long your money lasts.

Tax changes: This topic could be an entire article. The best advice is to get up to speed on the benefits of a share sale, an asset sale or a hybrid of the two.  In order to qualify for a share sale, which gives you access to the capital gains exemption, you need to make sure you have satisfied certain rules, and sometimes it can take a couple of years to properly cleanse a company and access this significant tax advantage on sale. With a share sale you end up with tax-paid personal cash to plan for retirement.  This may seem like a great idea initially, but it does limit some tax planning that can be implemented for clients with investments in their holding company for retirement and estate planning. 

Planning opportunities I like to take advantage of are: income splitting from the holding company; making use of insurance tax shelters and the capital dividend account credit to never pay tax again on those investments; and the ability to wind down registered retirement savings plans or registered retirement investment funds early in lower tax brackets if you have access to them in any early years. This avoids the pain of paying 49.8 per cent in tax on any remaining balance at death.  Taxes later are better than taxes today, however, so if you’re in the highest tax bracket, no early withdrawals are recommended.•


- Cindy David is president and estate planning adviser at Cindy David Financial Group Ltd. of Vancouver. She can be reached through

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