How To Sell A Business To Family

Selling A Business To Family


The decision to sell your business to someone in your family is a big one. It might come from your desire to finally retire. It might be imposed on you because of a serious illness.

The following are the 5 sequential steps you must take in order to successfully sell your business to someone in your family. Perhaps to your son or daughter, perhaps to a spouse or other family member. For each of the 5 steps, I’m going to discuss why that step is so important to you and to your business.


Step 1: Talk To Your Accountant

In other articles and videos, I talk about how critical it is for a business owner to have a good accountant – especially when it comes to selling a business to a family member.

Why? Because the fact of the matter is, the biggest impact as to how much money actually ends up in your pocket, is TAX. It’s critical you have an accountant who is knowledgable and experienced in implementing tax mitigating strategies such as you being able to claim your Lifetime Capital Gains Exemption (LCGE).

To quantify this I’m talking about the difference between you paying very little tax vs un-necessarily throwing away tens of thousands of dollars, even hundreds of thousands of dollars. Significant sums of money that can easily impact the quality of your retirement and value of your estate.

So Step 1 is to talk to your Accountant about the fact you want to sell your business. Have them talk to you in detail about the Canada Revenue Agency (CRA) requirements and rules and with this in mind how they plan to mitigate your tax implication.

If your accountant cannot demonstrate they have experience in such matters or you are not 100% sure of their ability – you need to look for a more suitable and experienced Accountant – STRAIGHT AWAY.

If your accountant demonstrates that they DO have experience in such matters and you are 100% sure of their ability – you need to listen to them and implement their advice – STRAIGHT AWAY.


Step 2: Hire A Business Broker

It is very important you sell your business at a fair market price. So the next step is to determine:

  • How much your business is worth today.
  • What elements of your business are contributing to this value.
  • What elements of your business are negatively effecting this value.

In order to do this you need to have an independent Business Broker complete a thorough Review & Valuation of your business. Specifically, you need to hire someone who has “hands-on” experience helping people buy and sell businesses.

Please don’t be tempted to ignore this very important step because if you hope to mitigate the amount of tax you pay, you must be prepared to demonstrate to the CRA what you did to determine the Fair Market Value of the Shares.

Once the Review & Valuation has been completed take the time to digest and discuss the findings.

Objectively ask yourself if now is really the best time to sell your business. If you are ready to embrace a transition of ownership, now might well be the best time to sell.

Then again, perhaps the business needs to be polished in some way before the actual transition can take place. Perhaps more time is needed in order to ensure your tax implication is minimized. If that is the case, I would highly recommend you take the next year or two to really work at maximizing the value of your business, by polishing and optimizing every element of your business.


Step 3: Engage A Lender

Just because you think your financial statements look good does not mean your business is financeable.

By “Financeable” I mean, will a major lender approve the family member you have in mind, the financing they would need in order to buy your business?

This is a very important question you need answered and unfortunately it is an answer very few business owners take the time to seek.

Why? Because a buyer being able to secure financing or not effects everything from the structure of the business sale, to the buyers attitude and work ethic, through to if and when you will get paid.

In my opinion a buyer, be it a family member or an unrelated individual or couple, should secure their own financing from a lender in order to buy your business. Vendor Take Backs aside, “gifting” large amounts of money or offering 100% seller financing on the promise they will pay you “$xxx” amount of dollars each month simply is a recipe for disaster.


Step 4: Do Some Soul Searching

At this point in the process you know you have a great accountant, you are actively working at mitigating your tax implication, you know the value of your business and you know that your business is financeable.

Now’s the time to do some serious soul searching. You need to ask yourself:

Is the family member you are thinking of selling your business too, really suitable for taking over the business?

  • Do they really understand the value of a dollar?
  • Will their first priority be the business and all the employees, or will their priority be themselves?
  • Will they lead through fear or will they actively encourage a “safe” creative working environement for each and every employee?
  • Can they be trusted to be responsible for the business as well as livelihood of each and every employee?
  • How will they contribute positively to the business and the longevity of the business?

While the answer to these questions can be very difficult to answer while separating emotion, but you owe it to yourself, you owe it you the rest of your family, you owe it to your employees and to the clients and customers, to sell your business to the “right” person – be it to someone in your family or to someone unrelated to you.


Step 5: Engage A Lawyer

And not just any lawyer!

As I recommend to everyone I speak to, you need to hire a lawyer who has lots of successful experience in business transactions. Not your lawyer ”friend”, not that real estate lawyer or that family lawyer you may have used years ago but again, a lawyer with EXPERIENCE in small business transactions.

A lawyer who will objectively consider what is in the best interest of all parties involved as well as consider what is in the best interests of the business itself.

It is important to note that some lawyers also specialize in further mitigating taxes for their clients. I mention this because quite recently I had a case where it was actually the lawyer who saved the seller client more in taxes than the company accountant said they were able too. Food for thought when considering the type of lawyer you’d like to use.


Let’s review and summarize the discussion.

The most difficult aspect of you working through each of these steps will be separating your emotions, feelings and perhaps long term relationships from reality and what you really need to do. Please do not be tempted to cut corners or simply “hope” everything will work out. Be proactive.

Selling your business to a family member should in my opinion follow the same steps as selling your business to an individual or couple unrelated to you.

Question if your Accountant has the knowledge and experience needed to ensure you pay as little tax as possible on the sale of your business.

Hire a Business Broker to thoroughly Review & Valuate your business. Don’t be tempted to just have your Accountant comment on the value of your business. Your Accountant doesn’t sell businesses. Furthermore, you CANNOT properly valuate a business by just looking at financial statements alone.

Engage an experienced lender representative as soon as possible. If the business is not financeable, make sure you clearly understand why and then make the necessary changes to ensure it can be financed.

Do some real sole searching. Ask yourself if that person in your family is really suitable for taking over your business? If not, it’s OK, if you’ve proactively followed the steps I’ve outlined, I promise you there are lots of fantastic buyers out there who would love to learn more about your business opportunity.

Always, always engage a suitably experienced lawyer to finalize the deal, legally. It’s in your best interests, it’s in the buyers best interests and it’s in the best interests of your business.

Finally, I want to stress that every expert involved in the sale of your business, from the Accountant, to the Business Broker to the Lender and Lawyer, are all critical to your success and the continued success of the business.

I know that this is a big deal for you and you’ve likely had some sleepless nights thinking about this but quite honestly, with the right experienced experts in place, you will find the whole process more enjoyable than you thought.

If you are a business owner and you are considering selling your business to someone in your family, you need to follow these 5 essential steps.


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