How to Sell a Small Business by Owner the Right Way

Deciding to sell your business without a broker means more control of the transaction and potentially higher profits.

It also means you are entirely responsible for valuation, buyer vetting, negotiations, financial and legal structures, and tax planning, all of which determine your after-sales proceeds.

In this blog, we will walk you through a clear, step-by-step process for selling your business independently. We’ve also explored the tax implications on your net proceeds, the common challenges to prepare for, and situations when you might consider professional help. 

Let’s dive in.

TL;DR – How to Sell a Small Business by Owner

Short on time? 

Here is a summary of selling a small business in Canada:

1. Prepare 3 to 5 years before the exit date
2. Obtain a professional business valuation
3. Get your financial and legal documents ready
4. Create sales materials and market
5. Screen and qualify potential buyers
6. Negotiate the deal terms
7. Complete due diligence
8. Close the deal and hand over

Why Sell Your Small Business Without a Broker

Selling your business without a broker can help keep more of your hard-earned money. 

Here are other reasons you should go solo in a business sale:

• Eliminates Broker Commissions: Minimizes transaction fees, allowing you to retain a larger share of your after-sale proceeds. Typically, brokers charge about 10% of your business’s final sale price as commission.
• Grants Full Control of the Sale Process: Retain complete authority over the entire sale process, from pricing and listing to identifying potential buyers and closing the deal.

You can tailor your sales process to your specific needs and timelines.

• Builds Stronger Buyer Relationship: Interact directly with potential buyers to gain more insights into their purchase goals and needs.

You can tailor your business valuation method to your specific buyer type, potentially leading to a more favorable outcome. 

• Enhances Confidentiality: Gives you full control over sensitive company data, including client details, supplier agreements, business strategies, and financials.

You can share information with only highly qualified, trusted individuals who have signed non-disclosure agreements.

• Offers Unmatched Flexibility: Decide how and when to sell. You can pause the sale or accelerate the process to accommodate your personal needs. You can also change your strategy based on buyer feedback.

How to Sell a Small Business by Owner – Step by Step

Selling a business independently saves on broker fees, but requires the same level of planning, organization, and compliance as a professionally managed sale. 

Below are the 8 steps to ensure a smooth, legal, and profitable sale process:

Step 1: Prepare 3 to 5 years Before the Exit Date

Planning your exits at least 3 years in advance gives you adequate time to: 

• Build your eligibility for the Lifetime Capital Gains Exemption (LCGE)
• Improve your company’s EBITDA margin
• Create your business independence
• Clean up your financial records

Ultimately, you can command a higher price and attract serious buyers.

Step 2: Obtain a Professional Business Valuation

Never guess your asking price. Research shows that most business owners overprice their businesses, resulting in stalled sales. Getting your business valuation done by a certified CPA or valuation expert provides you with defensible prices, ensuring you don’t overprice or underprice your company. 

Step 3: Get Your Financial and Legal Documents Ready

Buyers rely on your historical data to assess your business’s worth. Ensure your financial records and legal documents are clean and ready at least 12 months before listing your business.

That includes:

• 3 to 5 years of financial statements, profit &loss reports, and tax returns
• Records of all outstanding debts and pending lawsuits (if any)
• Shareholder agreements and corporate minute books
• Leases, employees, and suppliers’ contracts
• Proof of intellectual property ownership

Step 4: Create Sales Materials and Market 

Highlight your business’s strengths to reach out to the right audience while remaining anonymous. 

Prepare a Confidential Information Memorandum (CIM)to give a clear picture of your business’s financial health, operations, market position, and potential growth opportunities. 

List your business in your industry-specific marketplaces. You can also market your business discreetly to your competitors, employees, suppliers, and customers.

Step 5: Screen and Qualify Potential Buyers

Vet interested buyers for financial capability and genuine intentions while still maintaining your confidentiality. 

Pre-qualified prospects sign a non-disclosure agreement ( NDA)before sharing your business’s details. They should also provide proof of financial capability and a written statement of interest.

Step 6: Negotiate the Deal Terms

Negotiate for a deal structure that works for you and the buyer. Decide which payment structure is right for your sale, whether lump-sum or installment. Also, set clear terms around the transition support.

Remember, the deal structure you choose will affect your taxes.

Step 7: Complete Due Diligence

The buyer will thoroughly scrutinize your financial, legal, and operational records to verify that your business matches everything you presented. 

You can speed this up by providing them with a file of all contracts and agreements, 3-5 years of clean financial records, and your business plan. 

Step 8: Close the Deal and Handover

Once you’ve secured the best price and structure, it is time to formalize the transaction. Coordinate with legal and financial professionals to ensure purchase agreements and related legal documents are properly signed, and the sale is closed. 

Tax Implications of Selling a Business by Owner

Selling your business independently means dealing with complex tax events that vary dramatically depending on your sale structure.

Here is a table summarizing the tax implications of selling a business in Canada:

Tax Implication	Explanation	What You Should Know as a Small Business Owner
Lifetime Capital Gains Exemption (LCGE)	Allows you to shield up to $1.25 million in capital gains after selling Qualified Small Business Corporation Shares (QSBCS).  The exemption minimizes your tax liability when selling your ownership shares.	– You must be a Canadian resident for the entire year in which you require the exemption.  – You must have owned your business shares for at least 24 months before selling them.  – More than 50% of your shares must have been used in an active business in Canada within the 24-month timeline.
Capital Gains Tax	66.67% capital gains inclusion rate for profits up to $250,000.	You pay if you sell an asset for a price higher than its original purchase price. The profit you get is your capital gain. – If you sell an asset or stock at a price below its original purchase price, you can use your capital loss to offset the capital gains tax you owe. – The capital gain tax is added to your taxable income and calculated at your personal marginal rate. It’s also subject to corporate tax at a 15% (net tax rate) or 9% (for Canadian-controlled private corporations)
Depreciation Recapture	Applies when you sell assets that you’d previously depreciated to reduce your taxable income.	– Your gains are taxed as ordinary income at a higher rate. – It will increase your capital gains tax, significantly reducing your net proceeds.
GST/HST Obligations	Applies to the sale of taxable (tangible)business assets, including equipment, furniture, inventory, and vehicles.	– Goods and Services Tax (GST) is calculated at a rate of 5%. – The Harmonized Sales Tax (HST) rate varies between 13% and 15% depending on the province. – You are legally responsible for charging, collecting, and remitting the GST/HST tax to the CRA.
Sale Structure	Your sale structure has different tax consequences, whether it’s a share sale or an asset sale.	– If it’s a share sale, it’s subject to a 50% capital gains tax. It may qualify for exemptions, such as the LCGE. – If you’re selling a company’s assets, such as equipment or inventory, it can result in double taxation.
Payment Terms	Dictates the timing of your tax liability.	– Receiving installments allows paying taxes gradually. – A lump sum triggers a higher immediate tax in the year of the sale.

Challenges of Selling a Business Independently

Here are typical hurdles you may encounter if you take the DIY route when selling your business:

1. Limited Market Exposure: Selling independently means your potential buyers are limited to personal connections and online listing platforms, which limits your business’s visibility. 

You might reduce the likelihood of reaching the right audience, which leads you to lower your sale price.

2. Navigating Tax and Financial Intricacies: Selling a business requires specialized knowledge to navigate the operational, legal, and financial processes smoothly. 

For example, a lack of corporate tax planning strategies can lead to oversight when agreeing to the deal structure, exposing you to significant after-sales taxes. 

3. Valuation Inaccuracies: Determining your business’s market value and setting a competitive asking price can be challenging, leading to over-or underpricing. 

When prices are too high, you might deter serious buyers, and when they are too low, you risk leaving substantial value on the table. 

4. Handling Buyer Negotiations Effectively: Securing the best deal requires skill and experience to balance the price, terms, and personal needs. 

Without a professional advisor, you may negotiate from a personal attachment to your business, which can cause the deal to fall apart. 

5.  Tax Pitfalls: Without tax professionals, you might not know how to avoid paying taxes when selling a business.

It’s possible to settle for a deal structure that results in higher tax liabilities. For example, an asset sale without considering depreciation capture.

When to Bring in Professional Help

Selling a business demands a strong understanding of the legal, financial, and marketing dynamics of a sale, which may require professional support to streamline the process.

Here are 3 phases where you should bring in an expert:

• Early Discussion Phase: A professional helps you define your goals, set timelines and defensible asking prices, and identify your business’s ideal buyer. 

They also create legally binding contracts, such as NDAs, handle buyer screening, and control who receives your company’s information and when.

• Due Diligence Phase: An expert helps you create a due diligence checklist to address buyer concerns on time and with confidence.

They prepare all the documentation required to verify your business, even before the buyer asks.

• Closing and Transition Phase: At this stage, a professional reviews the purchase to ensure the terms reflect the agreement and don’t expose you to post-closing liabilities.

They also offer tax and compliance services to protect you from CRA scrutiny, ensuring you exit clean and on your terms. 

How We Support Independent Small Business Sellers

At JS CPA Strategic Solutions, we guide Canadian and US founders with businesses generating $1M to $50M annually and planning to scale, acquire, or exit in the next 3 to 5 years.

Here’s our approach to owner-directed business sales:

1. Growth Mosaic Strategy: Integrate business valuation services, fractional CFO services, M&A advisory, and tax strategies into a single cohesive approach that ensures every phase of your sale is professionally coordinated to maximize what you walk away with. 
2. Pre-sale Exit Planning: Provide a structured exit plan if you’re planning to exit in 3 to 5 years. We integrate tax planning, valuation improvement strategies, and LCGE qualification planning into the exit plan to create more value for your business. 
3. Business Valuation: Provide detailed, accurate business valuation reports to help you set a defensible asking price that withstands buyer scrutiny. 
4. Deal Structuring: Structure a deal that maximizes your after-sale proceeds by analyzing your ownership structure, financial records, and your LCGE eligibility.
5. Negotiation Support: Lead your negotiation strategy, anchoring your position to credible valuation and ensuring that it addresses every stage of buyer involvement on your behalf. We ensure that all agreed terms reflect your business’s true value. 
6. Due Diligence Support: Through our M&A advisory, we provide industry-specific insights into your business’s true value and coordinate the transition process, ensuring a well-structured handover and a seamless exit with no post-sale liabilities.

Book a no-obligation call!

Frequently Asked Questions (FAQs)

Here are some questions that we get often from most independent business sellers:

What Is the Best Time of Year to Sell a Small Business?

There is no best calendar month to sell your business. However, specific principles that should guide your decisions:

• Selling your business at its peak commands a higher sale price, as buyers pay premium prices when the business is performing well
• Selling your business during a low-income year lowers your marginal tax rate. Selling a seasonal business before its high-profit season maximizes the sale price.

How Long Does It Usually Take to Sell a Small Business by Owner?

Selling your small business may take 6 to 18 months, depending on your preparation, asking price, business complexities, industry, and market conditions. Having your financials in order, a professional valuation ready, and a well-crafted CIM before you list your business can help accelerate the process.

How Do I Maintain Confidentiality When Selling My Business Myself?

Here are the steps to maintain your confidentiality when selling your business:

• Market your business anonymously.
• Have potential buyers sign a non-disclosure agreement (NDA) before discussing the sale.
• Qualify buyers by asking them to provide proof of funds, a clear formal intent to purchase, and acquisition history.
• Even with an NDA signed, limit access to key business information in the early stages.

Conclusion

You can sell your business without a broker with the right preparation, tools, and guidance. However, to achieve a profitable exit, you should know where and when you need professional help entirely. 

So, if you want to protect what you’ve spent years building, consider working with valuation experts early on.

At JS CPA Strategic Solutions, we work closely with business founders who want to exit in the next 3 to 5 years. We help you get your business valuation right before setting the asking price, organize your finances in advance, and plan your taxes early enough before your exit.

Schedule a personalized call to ensure your deal structure protects your after-sales proceeds.