Financial Perspective – How to successfully transfer your business
Are you one of the thousands of Canadian business owners planning to leave your company over the next few years? Here are 6 tips for a successful business transfer.
According to the Canadian Federation of Independent Business, 76% of business owners say they want to move on from their business in the next 10 years.1 Lots of different factors can affect business transfers, including the business sector and the company’s fair market value, age and corporate structure.
Once an owner has decided to transfer their business, they have to settle on the terms and conditions. Here are the most common arrangements:
- The owner sells their shares in the company, which creates a capital gain. They have the option of using the federal government’s new $1.25 million federal gains exemption, which comes into effect on June 25, 2024.
- The company buys back the shares, which creates a dividend for the seller.
- The company sells off its assets, ultimately resulting in a dividend for the seller, which is likely to come from the capital dividend account.
- The company could also opt for a combination of these 3 options, or decide to draw the transaction out over a longer period of time.
When selling to a third party, the main objective is usually to maximize the value of the business. The goal could be very different if the business was being sold to a family member, for example. Either way, having a succession plan is key.