Creating an Exit Strategy for your Business

It’s important to comprehend the financial and personal ramifications of your decisions if you’re thinking about selling your firm. The measures you can take to evaluate if this is the correct moment to create an exit strategy, the benefits, and drawbacks of various departure options, and the ensuing tax repercussions for your small business are all covered in this article.

Assess whether you should sell your business

Your particular situation and objectives will determine whatever choices you make regarding your exit strategy, including its timing. You should consider the following three key factors when determining whether it’s time to start planning your leave.

1. What is the current worth of my business?

Any decision you make about your future will be impacted by your understanding of the present market value of your company, and achieving an accurate assessment is a difficult undertaking. Depending on your anticipated price and the fact that selling your firm can sometimes take nine to twelve months, the timing of your subsequent stages may alter. Working with an expert can help you make sure you don’t overvalue your company or undervalue its potential for future growth.

2. Is there demand for my brand?

Take into account the demand for firms in your industry as well as privately held companies in general. Over the past six to nine months, there has been a substantial amount of M&A activity in the Canadian market, which has opened up chances for both buyers and sellers. Because market circumstances can shift suddenly, it’s critical to comprehend how the cyclical nature of the M&A landscape may impact your chances of making a deal.

3. What are my goals?

When to exit and your best selections are determined by our financial or personal goals. It’s vital to understand the timetables connected with different exit strategy options because, for instance, choosing to start the next phase of your life as soon as feasible may demand more money up front.


Consider common exit strategies

1. Transition your business to a family member

If you want your firm to remain in its current form but would like to relieve yourself of some of the responsibilities, you may want to consider transferring ownership or control to a family member. With careful succession planning and the passage and implementation of Bill C-208, you may be able to pass on your family business to the next generation free of the tax penalties that would otherwise be incurred without this legislation.


Carefully selecting and preparing a successor to take on both immediate and long-term decision-making and responsibility is essential for a seamless transition.


Even though it’s common for a family member to inherit a business and take over management, this strategy might not work for you if you need a quick exit or payout.


2. Sell your business to your existing partners or employees

People who are already well-versed in the company’s culture and procedures can assume control of the business through a management buyout or sale to an existing senior team member. This ensures that your company doesn’t have to stop running while you shift your day-to-day duties over to someone else, and it may also make the transition go more quickly. Selling to employees, on the other hand, may result in a lower sale price and a longer time to completely realize on the funds from the sale, although the sale price will ultimately depend on what is occurring in the market.


3. Sell your business on the open market. 

In order to sell your business for the highest possible price, it must first attract potential buyers. Preparing your company for a sale involves doing things like updating your financial records and asset inventories and documenting your operations thoroughly.


Tax implications of selling your business

Depending on the method you use to exit your business, there may be tax implications. If you decide to sell or pass your business to a family member, you will be subject to capital gains taxation based on the worth of the company at the time of the transfer. Although it is important to plan ahead of time, you can minimize your tax liability by taking use of exemptions and methods like an estate freeze to facilitate a smooth and tax-free transfer.


The after-tax return on the sale profits is an important factor to think about if you’re considering selling your business. Capital gains exemptions and tax deferrals may be available depending on whether you’re selling the entire business, a portion of the business, or just an equity position in the business. There may be additional tax consequences to consider if the sale of your business involves contingent or earn-out components.


If you decide to sell off your company’s assets, you’ll need to think about the tax implications. After paying off any outstanding debts to creditors, any residual funds from an asset sale may be given to you as taxable dividends, depending on the ownership structure of your company.