Should you sell your business now?
Any decision about your exit—including its timing—comes down to your unique situation and goals. There are three important questions to ask that can help you assess whether now is the right time to plan an exit.
How much is my business worth today?
Understanding the current market value of your business impacts any decision you make regarding your future and getting a proper estimate can be a complicated task. Working with a professional can help ensure that you don’t overestimate the value of your business or underestimate its potential for future growth.
Is my business in demand?
Consider the demand for businesses in your sector and privately held businesses overall. Market conditions can change quickly, so it’s important to understand how the cyclical nature of the mergers and acquisitions landscape could affect your sale prospects.
What are my personal goals?
Your personal or financial goals help determine when to exit and your best options. Deciding to move on to the next chapter of your life as soon as possible can require more funds upfront, so it’s important to understand the timelines associated with various exit options.
What are the options to exit your business?
Sell your business
There are two ways you can pursue this option:
• Sell to your employees. A management buyout or sale to an existing employee allows individuals familiar with the culture and processes to acquire the company and take control of ownership. This provides continuity in your business and can mean a smoother transition that requires less time to transfer your day-to-day responsibilities. However, selling to your employees can result in a lower sale price and may take longer to fully realize on the funds from the sale.
• Sell your business on the open market. This option requires a process whereby your business is carefully positioned and marketed to a thoughtful purchaser list of strategic and/or financial buyers (ie. private equity, etc.). This encourages a competitive process with the intent of maximizing value and confidentiality for stakeholders.
Transition to a family member
Consider transferring ownership or control of your business to a family member if you want it to continue in its present form but would like some relief from the mantle of responsibility. There is now legislation in effect that, with prudent succession planning, may help you transition your family-owned business to the next generation without the adverse tax consequences that previously impacted some arrangements.
Do you have to pay tax when you sell your business?
The tax implications of stepping away from your business will depend on how you exit. If you choose to hand down your business to a family member, the business is deemed to transfer at fair market value, meaning that you’ll be taxed on capital gains based on the business’ value. There are exemptions and strategies that can help you make the transfer as tax efficient as possible, though it’s crucial to plan these in advance of the transaction.
If you’re opting to sell your business, you’ll want to consider the after-tax return on the proceeds of the transaction. There are also tax considerations associated with liquidating your business assets. Once the proceeds of an asset sale have be used to repay outstanding debts owed to creditors, and the remaining proceeds, depending on your business’s ownership structure, may be distributed to you as taxable dividends.
Exiting a business is a complex matter—but you aren’t alone. It’s important to work with advisors who can help you throughout the transaction’s life cycle to find the right buyer and navigate the tax implications. With offices across Interior B.C., business advisors at Grant Thornton LLP are available to help you find your way forward. Get in touch with them today.
This article is written by or on behalf of the sponsoring client and does not necessarily reflect the views of Castanet.