How to Sell a Business in Canada: The 12-Month Playbook for Founders

Why does selling a business take 12 months, not 90 days?

Many Canadian owners will face this soon. In a 2023 report, the Canadian Federation of Independent Business found that 76% of owners plan to exit within the next decade, putting over $2 trillion in business assets in play. Yet only 9% have a formal succession plan.

A 90-day sale tends to go wrong for three reasons:

• Buyers find what you didn't prepare.Gaps surface in due diligence, after you've signed an exclusive deal, and the price drops.
• One buyer is not a market.Without competition, you can't know if an offer is fair.
• Tax planning runs on CRA's clock.Some tax exemption tests look back 24 months, and those fixes can't be rushed.

One honest note: this playbook assumes selling is right for you. Many founders we work with decide to grow the value first, and that is a good answer too.

The full timeline at a glance

These phases overlap and are planning estimates, not promises.

What has to happen 24 months before you sell?

We describe the 24-month rule as a slow cooker. You can't add the ingredients and serve dinner the same hour. CRA wants to see a structure that was built for sound business reasons over time, not one assembled the week before a sale.

Items that need the full 24 months:

• Share ownership matches how you plan to sell.The exemption applies to shares sold by individuals (or allocated through a family trust). If a holding company owns your operating company, the holding company's own assets are tested too. Map which shares will actually be sold, and by whom.
• Your spouse owns shares, if you plan to use two exemptions. This is usually set up through an estate freeze or share reorganization so future growth builds in your spouse's shares. Attribution rules can send the gain back to you if it's done wrong, so this is CPA work.
• Passive assets are removed from the company whose shares will be sold. This is called purification. Excess cash and investments are moved out, often by dividend, and the tax effect needs to be calculated first.
• Investment real estate is moved out.Property your company rents to others or holds as an investment counts as a passive asset. Property used in your own business generally counts as active, but many owners still hold it in a separate company so it can be sold, leased or kept on its own terms.
• A family trust is settled, if one suits your situation and business size.

What does 24 months of planning look like in dollars?

Here is an illustration for a business with a $4 million sale price, a nominal cost base, and the top Ontario tax rate on capital gains.

That is roughly $634,000 more in the owner's pocket from two years of preparation. Illustration only. It ignores alternative minimum tax, fees, debt and working capital, and uses 2026 Ontario rates. Your numbers will differ.

Months 1 to 3: How do you prepare a business for sale?

Get an honest baseline

Start with the Sellability Score. It's a free assessment that takes about 13 minutes and rates your business on eight factors buyers care about, including financial performance, recurring revenue, customer concentration and how much the business depends on you.

You get a score and an estimated range of value. It isn't a formal valuation, but it shows where buyers will see strength and risk.

Make your financials buyer-ready

Buyers are paying for confidence that future cash flow will continue after you leave. Give them:

• Three to five years of CPA-reviewed statements that match your tax returns.
• Personal expenses separated from business costs.
• Normalized earnings, adjusted for one-time costs and a market-rate salary for you. Every adjustment needs a document behind it, or buyers will discount it.
• Revenue by customer by month.Buyers rebuild this from source to test concentration and churn.

Expect the buyer's accountants to run a quality of earnings review. It checks that reported revenue ties to actual bank deposits and that each add-back can be traced. Some sellers commission their own review before going to market, so surprises become talking points instead of price cuts.

Know your number

Before you can tell whether a sale will work, you need two numbers: the minimum you need to walk away feeling secure, and a recent, credible valuation of your business.

Most owners are missing at least one. In an analysis of 10,548 owner assessments completed between 2019 and 2026, only 27% had both numbers, and nearly 40% had neither.

Having both doesn't guarantee good news. Among owners who compared the two, about one in five found the business was worth less than they needed, and another 15% weren't sure.

That's why timing matters. A shortfall found five years out is a planning problem you can solve by growing value or adjusting your number. Found six months before a sale, it often means a failed deal or a delayed retirement.

Keep in mind that value, price and proceeds are different numbers. Your minimum should be based on proceeds: what you keep after debt, fees and tax.

Source: Value Builder System, "What's Your Number?" (2026)

What drives the multiple a buyer will pay?

Most Canadian mid-market businesses are valued as a multiple of normalized EBITDA. The industry sets the starting range. Your business's specific traits decide where you land inside it.

Ranges are general guidance for Canadian mid-market deals, not a valuation of your business.

What moves you toward the top of the range: contracted recurring revenue, a broad customer base, low owner dependence, a capable management team, proprietary systems and 10% or more annual growth.

What moves you toward the bottom: your top three customers making up more than 25% of revenue, project-based revenue, declining sales, poor records and a business that runs through you.

Reduce how much the business depends on you

Ask yourself: if you stepped away for 90 days, what would slow down? Every answer is value that sits with you instead of the business.

This has a real price. When the owner makes every decision, holds the key customer relationships and works 60 or more hours a week in operations, buyers typically cut the multiple by 0.5x to 1.5x EBITDA and ask the founder to stay two to three years after the sale.

Key staff matter too. Buyers commonly discount businesses with high key-person risk by 20% to 30%. A retention or phantom equity plan, put in place 18 to 24 months before the sale, often sets aside 5% to 15% of company value for three to five key employees with vesting.

Clean up the legal file

• Minute books current and the shareholder agreement reviewed
• Customer and supplier contracts checked for change-of-control clauses
• Employment agreements, and non-solicit terms for key staff
• Shareholder loans repaid and tax filings current

Build your sale materials

By month three, you should have three things ready:

• Teaser: a short, anonymous summary to test buyer interest.
• CIM (Confidential Information Memorandum): the detailed buyer document.
• Data room: a secure online library of the documents buyers will review.

See how we run this phase in our sale process.

Months 4 to 6: How do you find buyers for your business?

Who buys businesses in Canada?

• Strategic buyers (competitors or companies in related markets) may pay more for your customers or territory.
• Financial buyers such as private equity focus on cash flow and often want you to stay on.
• Individual buyers want one company to run themselves.
• Management or family offer continuity, though financing may limit their price.

The highest bidder isn't always the best buyer. Fit, financing certainty and what happens to your team matter too.

Why do buyers say they can't pay more?

For many buyers, the lender sets the ceiling, not the comparables. Banks size a loan so the business's earnings cover the payments with room to spare. As a rough guide, borrowing $1 million at about 9% over six years costs around $216,000 a year. A buyer who says "3x is my limit" is often reporting what the bank approved. In that case, the useful conversation is about structure, such as vendor financing, rather than the multiple.

How do you keep the sale confidential?

Buyers see an anonymous teaser first. Interested parties sign an NDA (non-disclosure agreement) before receiving the CIM, and only the most serious buyers get management meetings.

Why collect Expressions of Interest first?

Sellers rarely lose leverage at the negotiating table. They lose it at the letter of intent (LOI), because most LOIs include exclusivity, which stops you from talking to other buyers.

That's why we ask buyers for Expressions of Interest (EOIs) first. An EOI outlines a buyer's early view of price and terms without binding anyone, so you can compare options while competition is still alive.

Not sure whether you need a broker or an advisor to run this? See Business Broker vs M&A Advisor: Who Should Sell Your Business?

Months 7 to 9: What happens during due diligence?

How do you compare letters of intent?

Look beyond the headline price. Ten million dollars paid at closing is very different from ten million tied to a risky earn-out.

Also compare the length of exclusivity. Shorter is better for you.

What is the difference between the offer price and what you receive?

The number in the LOI is enterprise value. What lands in your account is equity value. To get from one to the other, take the enterprise value, subtract interest-bearing debt, add surplus cash, adjust for working capital against the agreed target, subtract debt-like items (such as customer deposits or deferred revenue), then subtract transaction costs.

Most mid-market deals are done cash-free and debt-free. You keep the cash in the company, your loans are repaid from the proceeds, and you hand over a normal level of working capital.

What is a working capital peg?

A working capital peg is the normal level of working capital (receivables plus inventory, less payables) the business must have at closing, usually based on a 12-month monthly average. About 60 to 90 days after closing, the actual figure is compared to the peg. If it comes in lower, your price drops dollar for dollar.

Two common traps: chasing receivables hard before closing to "take the cash with you" (it comes straight back at the true-up), and leaving construction holdbacks undefined until week nine. Agree the method in the LOI.

What do buyers check, and what causes a price cut?

Expect detailed requests on your financials, tax, contracts, customers, employees and operations. Every answer should come from one confirmed record, so the same question never gets two different answers.

A price cut during exclusivity is called a re-trade. The most common triggers are:

• Business performance slipping during the process
• Add-backs that don't survive the buyer's review
• Working capital found in diligence rather than agreed up front
• A problem the seller knew about and didn't disclose
• Customer concentration worse than represented

For more, see Why Deals Lose Value in Due Diligence. Every defence is built before you sign exclusivity: a short exclusivity period, your own quality of earnings review, an agreed working capital method, and a disclosure schedule that puts the bad news up front.

Months 10 to 12: How do you close the sale of a business?

The key parts of the purchase agreement are the statements you make about the business (representations and warranties), what happens if one proves wrong (indemnities), and any non-compete terms. In many mid-market deals, general representations last 12 to 24 months, claims must pass a threshold of about 0.5% to 1% of the price, and total exposure is capped at a negotiated share of the price. Choose a lawyer with real business-sale experience.

Your disclosure schedule is your best protection. Anything properly disclosed against a representation generally can't be claimed as a breach later. Don't hand it to whoever has spare time.

Decide with your CPA, before closing day, where the proceeds will land and how you'll invest them. Most buyers also want you to stay for a transition period to introduce customers and train the team. Agree on your role and timeline in writing.

How is the sale of a business taxed in Canada?

What is the Lifetime Capital Gains Exemption in 2026?

The LCGE lets individuals shelter capital gains when selling qualifying shares. For 2026, the limit is $1,275,000 per person, indexed to inflation each year. CRA calls it the capital gains deduction (line 25400 of your return). At the top Ontario rate, one full exemption saves roughly $341,000 in tax.

The proposed increase to the capital gains inclusion rate was cancelled in March 2025, so half of a capital gain is still taxable.

How the income type changes your tax at the top Ontario rate in 2026:

That gap is why deal structure matters as much as price.

What happened to the Canadian Entrepreneurs' Incentive?

The Canadian Entrepreneurs' Incentive, proposed in 2024, was not carried forward. Federal Budget 2025 confirmed it will not proceed. Some older articles still describe it, so check the date on anything you read.

Do your shares qualify?

To use the LCGE, your shares must qualify as Qualified Small Business Corporation (QSBC) shares. In broad terms, all of these must be true:

• Your company is a Canadian-controlled private corporation.
• At the time of sale, 90% or more of its assets (by value) are used in an active business in Canada.
• For the 24 months before the sale, more than half of its assets were used in an active business.
• For those 24 months, the shares were owned only by you or a related person.

Common problems include excess cash or investments inside the company, real estate that isn't used in the business, and a holding company whose own assets fail the tests. Some fixes need the full 24 months to work, which is why this review should happen well before the sale.

Can more than one family member claim the exemption?

Yes. Each qualifying individual has their own exemption, applied to the gain on their own shares. A spouse who has owned qualifying shares for at least 24 months can shelter up to a second $1,275,000, for $2,550,000 combined. A family trust can extend this to other beneficiaries, which tends to suit larger businesses with a long planning runway. Your spouse's legal claim to half the business is part of that decision.

Can you sell your company to your own holding company to use the exemption?

No. Selling shares to a corporation you or your family control triggers Section 84.1 of the Income Tax Act, which can turn the gain into a taxable dividend. The LCGE does not apply to dividends. Genuine transfers to your children's company have their own strict rules. If a family buyer is on the table, bring in tax counsel early.

Share sale vs asset sale: which is better for the seller?

In a share sale, the buyer purchases your shares and takes over the whole company. In an asset sale, the buyer purchases the company's assets and leaves the corporation with you.

Sellers usually prefer share sales. Buyers often prefer asset sales, which avoid unknown liabilities and give them tax deductions.

If a buyer insists on an asset sale and your shares qualify for the LCGE, don't just accept it. Negotiate a price premium, often 10% to 15%, that leaves you close to where a share sale would. On a $3 million deal, for example, the seller might net about $2.58 million from a share sale but only about $2.26 million from an asset sale at the same price. An asset sale at about $3.4 million restores the seller's result, and the buyer's tax savings help cover the difference. Illustration only, based on Ontario rates.

How is money paid over time taxed?

If part of your price is paid later through vendor financing, a capital gains reserve can spread the gain over up to five years, with at least 20% recognized each year. Earn-outs are taxed differently and can be complex, so raise them with your CPA before the LOI fixes the structure. Watch for any part of the price allocated to a non-compete, which can be taxed as ordinary income.

For a quick overview, see our FAQ on taxes when selling a business.

This is general information, not tax advice. Work with a CPA and a lawyer who specialize in business sales.

Pre-sale checklist

Frequently asked questions

Related guides

About the author

Sources

• Canadian Federation of Independent Business, succession planning report (January 2023)
• Canada Revenue Agency, Line 25400: Capital gains deduction
• Department of Finance Canada, Budget 2025
• Value Builder System, "What's Your Number?" (2026)