CHALLENGES IN SELLING A BUSINESS
THE 10 PROBLEMS OWNERS FACE WHEN THEY TRY TO SELL THEIR BUSINESS
- High tax rates for Canadian CCPC owners, American LLC, S Corp, and C Corp when profits are paid to shareholders as salary, bonus, or dividends.
- Disincentives to buy these profitable enterprises by outside buyers because of high tax.
- Business can be gifted without the tax at death. However, a sale of a business attracts capital gain tax 20% rate in the USA and 46% on a taxable gain in Canada.
- Finding a qualified buyer is a long and difficult process because of a lack of certainty and transaction costs are high.
- An inside buyer such as a key employee, son, or daughter, is problematic because of a lack of capital.
- For retiring business owners, generating any income from the after-tax capital proceeds from the sale is problematic because of low returns (5% most likely).
- If the enterprise is not sold and the future value rises to a level greater than the combined estates' tax-free limit, estate taxes may reduce the business liquidity value by 50%.
- Finding debt capital to buy a business is difficult because lenders are reluctant to collateralize inventory, depreciated assets, and Accounts Receivable over 45 days.
- Private company capital must compete with public markets, which are much more efficient than larger capital pools.
- Buyers heavily discount the price of the business because paying back debt on acquisition is expensive due to high taxes and interest rates. All buyers know that all the above works in their favor.
West Office 403-450-3480
East Office 416-528-1854
East Office 416-930-2875
West 1700 Varsity Estates Dr. NW
Calgary, AB T3B 2W9
East 84 Lift Lock Rd. W
Kirkfield, ON K0M 2B0