What is the risk of waiting too long to plan my exit?

Exit planning feels optional until something makes it urgent. BDC, the Business Development Bank of Canada, says many owners wait too long to make the preparations a sale needs, and that many underestimate how long that preparation takes. The risk is not one bad event. It is that the sale happens on a schedule you did not choose, with problems you had no time to fix.

The sale happens when events decide

BDC lists medical issues, financial difficulty and disputes with business partners among the reasons owners sell. One of its directors describes owners nearing retirement age who had given no thought to selling, then sold at a time that was not ideal, for example because of health, and did not get the outcome planning would have produced. A forced timetable also takes away the option of waiting for a better moment.

Problems surface in the buyer’s review

BDC says unaddressed issues complicate a sale because the buyer has to think about resolving them without the owner’s knowledge of the business, and that this can affect the price or terms. Its list of issues to address before a sale includes customer or supplier concentration, gaps in the management team, a business that relies on the owner’s presence, contracts and leases that need updating, and equipment that is not being maintained. BDC says preparing a business for sale takes longer than many owners expect, especially when there are issues to address.

Some tax tests look backward

The Income Tax Act’s definition of a qualified small business corporation share, which the CRA links to the capital gains deduction, tests, over the 24 months before the sale, whether anyone other than you or a person or partnership related to you owned the shares, and what the company’s assets were, subject to the exceptions in that definition. Changes made shortly before a sale cannot rewrite that period. Whether your shares qualify is a question for your accountant, and the answer is easier to act on early.

Planning does not commit you to selling

An exit plan keeps options open rather than choosing one. What are my options for exiting my business sets them out, and when to start planning your exit covers lead times.