According to CFIB (Canadian Federation of Independent Business), approximately 75% of small business owners plan to exit their business within 10 years — but fewer than 10% have a formal written succession plan. The gap between intention and preparation is where businesses lose value, families lose harmony, and owners lose the retirement they worked decades to build.
Why succession planning matters
- Maximize business value: A business that is prepared for transition — with documented processes, a strong management team, and diversified client relationships — commands a higher price than one that depends entirely on the owner
- Minimize taxes: Without proper planning, the proceeds of a business sale can be severely eroded by capital gains tax. Strategies like the Lifetime Capital Gains Exemption (LCGE) can shelter up to $1,016,602 (2024) of capital gains on qualified small business shares
- Protect family relationships: Unplanned business succession is a leading cause of family conflict, especially when multiple children are involved but not all work in the business
- Ensure business continuity: A formal plan prevents a 'fire sale' scenario where the business must be sold quickly at below-market value due to the owner's unexpected death or disability
- Fund your retirement: For many business owners, the business is their primary retirement asset — proper succession planning ensures it actually converts to the retirement income you need
Your exit options
Keeps the legacy in the family but requires careful tax and family dynamics planning. Not all family members are suited to run a business.
Management buyout (MBO) preserves culture, continuity, and relationships. Typically structured over time — seller may need to finance part of the purchase.
An arm's-length sale typically achieves the highest market value. Requires preparation and may not be right for every type of business.
Closing the business and liquidating assets. Almost always destroys significant value — but sometimes the right answer for businesses without a viable successor.
Transferring to family
Family business succession is emotionally complex and financially nuanced. Key considerations:
- Assessing readiness: Is the successor family member genuinely capable and motivated to run the business — or does family loyalty create unrealistic expectations?
- Equitable vs equal: How do you treat children who are not involved in the business? Estate equalization strategies (see Carrie's estate planning articles) address this.
- Tax efficiency: Family transfers must be structured carefully to access the Lifetime Capital Gains Exemption and avoid attribution rules or deemed dispositions
- Gradual transition: Carrie typically recommends a phased transition over 2–5 years — the founder gradually reduces involvement while the successor builds authority and relationships with clients and staff
Selling to a third party
A third-party sale typically generates the highest value — but requires the most preparation:
Prepare 2–3 years in advance
Clean up the financials, reduce owner-dependence, document key processes, and strengthen the management team. Buyers pay premiums for businesses that don't need them.
Get a professional valuation
Understanding what your business is worth — and why — allows you to maximize value and respond to buyer offers from a position of knowledge.
Optimize for the Lifetime Capital Gains Exemption
Ensure your shares qualify as small business corporation shares, and implement estate freezes or share restructuring if needed to access the full exemption.
Structure the deal tax-efficiently
Asset sale vs share sale, earn-out provisions, vendor take-back financing — the structure of the sale can significantly affect your after-tax proceeds.
Plan for life after the sale
Many business owners struggle with the identity and purpose questions after selling. Build a post-business financial and life plan alongside your succession plan.
Tax considerations in business succession
- Lifetime Capital Gains Exemption (LCGE): Up to $1,016,602 (2024; indexed annually) of capital gains on the sale of qualified small business corporation shares is tax-free. Each shareholder can claim their own exemption — structuring the business with family members as shareholders can multiply this benefit.
- Estate freeze: A reorganization strategy that 'freezes' the current value of your shares and shifts future growth to the next generation. Used to minimize the taxable estate and multiply access to the LCGE.
- Capital gains inclusion rate: In 2024, the federal government proposed increasing the capital gains inclusion rate for gains above $250,000. The tax planning implications of this change should be modelled for any business with significant value.
- Intergenerational transfer provisions: Special rules allow business owners to sell to their children and still access the LCGE — with careful planning to meet the eligibility requirements.
Carrie's advice: The best succession plans start 5–10 years before the planned exit — not 12 months before. The earlier you begin, the more options you have, the more value you can protect, and the more smoothly the transition can occur. Book a conversation with Carrie to start building your succession roadmap.
Carrie Wang
Carrie is the founder of Seven Lakes Financial Services Inc. and a Sun Life advisor serving clients across Ontario and Saskatchewan. She specializes in retirement, estate, and investment planning, with a warm, personalized approach. She is fluent in English, Mandarin, and Taiwanese.