How do I plan an exit strategy for my small business in Canada?

An exit strategy is a written plan for how you will leave your business and what you want to leave with. It is not the same thing as listing the routes out. Those routes are laid out on a separate page about your options for exiting. This page covers the order of the work: decide what you want, choose a route against that, prepare the business and the people who depend on it, and then handle the paperwork that follows a sale or a closing. Treat each step as a question to put to your accountant, lawyer and, if you use one, a broker.

Start with your goals, not with a buyer

BDC says your reasons for selling will likely influence your goals for the transaction, and that being clear on those goals helps you take the right steps to structure and prepare for a deal that satisfies your needs. Write them down before you talk to anyone. Do you need the proceeds to retire? Do you want the business to carry on under your name? Do you want long-time employees to keep their jobs? Are you willing to stay on for a handover period? Ranking these goals tells you which routes are worth pursuing and which are not.

Match a route to those goals

CFIB reports that most owners expect to transfer their business outside the family, to an unrelated buyer or to employees, while some expect to close their business altogether. Those are expectations, not outcomes, and your own list of goals matters more than the survey. Each route asks different things of you. A sale to an outsider asks you to be ready to be examined. A sale to employees or family asks whether they can fund and run the business. A closing asks how you will wind down contracts, staff and assets.

Decide how involved you will stay

Your plan should say whether you will remain after the sale. BDC quotes an adviser who notes that in a deal where the seller is paid entirely in cash and is not involved afterward, the buyer is taking on more risk because a lot of things could go wrong after the transaction. Think about what that would change for a buyer you are negotiating with. If you are unwilling to stay at all, ask your advisers how that could affect the terms, and decide ahead of time what you could offer instead, such as documented processes.

Prepare the people and the roles

BDC defines succession planning as the process of preparing successors for key roles so disruption is minimized during leadership changes, and says it is not just for the chief executive. List the roles that would stop working without you: customer relationships, ordering, payroll, supervision. Then decide who could take each one, and what they would need to learn. This applies whether the next owner is a family member, an employee or an outside buyer. BDC says succession planning ensures critical knowledge is passed along before it’s too late.

Plan the tax and the registrations

The CRA tells sellers that if the business has a business number, they should contact their tax services office, since they might have to cancel it. If it has a GST/HST account, the CRA says you must contact your tax services office to close it, and if it has employees you must close the payroll account. For some sales the CRA says you may be able to jointly elect with the purchaser to have no GST/HST payable, if its conditions are met; it says the election cannot be made if you sell only one or more assets of your business, or if you are a registrant and the purchaser is not. Because these steps depend on how the deal is structured, raise them with your accountant early. The tax on the sale itself is a separate subject, covered in planning the tax on exiting your business.

Turn the plan into a timeline

Put dates against each step, working backwards from when you want to be out. Include time for your advisers, for any tax planning that has to be done before a sale, and for a buyer’s own review. If you are unsure when to begin, read when to start planning your exit. Revisit the plan each year, because your goals, your health and the business itself will all change. CFIB reports that owners with a formal written succession plan are far more confident of achieving a successful exit than those with no plan.

• Write down your goals for the exit and rank them.
• Choose the route that fits those goals: unrelated buyer, employees, family or closing.
• Decide how long, if at all, you would stay after a handover.
• List the key roles and who could fill them.
• Ask your accountant about the business number, GST/HST and payroll accounts, and the tax on the sale.