How do I value a business for a family transfer?

It is tempting to skip a formal valuation on a family transfer, or to simply pick a number that feels fair. That instinct causes real problems later, for tax purposes, for financing, and for family harmony if other children were not part of the business.

Why an informal number is a risk

A transfer at less than fair value can create tax consequences for both you and your child, because the CRA does not treat family transactions as automatically exempt from the rules that apply to any other sale. A defensible, professionally prepared valuation is your evidence that the price was reasonable if the transaction is ever questioned.

How the valuation is actually done

The methods are the same ones used to value any small business: typically an assessment of normalized earnings, comparable transactions and asset value, adjusted for how dependent the business is on you personally. A qualified business valuator, not the owner and not the successor, should prepare it, dated close to the transfer.

What it protects beyond tax

• It protects fairness to siblings who are not taking over the business but still have an interest in the estate.
• It gives you a credible basis for any financing the transfer relies on, whether from a lender or a vendor take-back.
• It sets a clear starting point if the structure includes an estate freeze, since the freeze value is fixed at that valuation.
• It leaves less room for a future dispute about whether the transfer was fair.

When to get it done

Have the valuation done before you finalize the structure, not after. An estate freeze, a family trust or a straightforward share transfer all rely on a number set at a specific point in time, and unwinding a transaction because the value was wrong is far harder than getting it right up front.