How to sell a business in Canada: why does it take 12 months?
SHORT ANSWER
A well-run sale takes about a year because each stage protects your price, your terms or your after-tax result. Rushing usually costs the seller money, because gaps get found after you have lost your negotiating leverage. The phases below overlap, and they are planning estimates, not promises.
Many Canadian owners will face this decision. 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 the CRA's clock. Some tax exemption tests look back 24 months (CRA guide T4037), and those fixes can't be rushed.
| When | Phase | Key outputs |
|---|---|---|
| 24+ months before | Tax and structure | Share ownership mapped, spouse owns shares (if planned), passive assets removed, investment real estate moved out |
| Months 1 to 3 | Preparation | Honest baseline, buyer-ready financials, teaser, CIM, data room |
| Months 4 to 6 | Go to market | Buyer list, NDAs, Expressions of Interest |
| Months 7 to 9 | Due diligence | Letter of intent, working capital agreed, buyer review |
| Months 10 to 12 | Close | Purchase agreement, funds flow, handover |
| After closing | Transition | Earn-out tracking, proceeds invested, estate plan updated |
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.
What has to happen 24 months before you sell?
SHORT ANSWER
The structure that protects your tax result needs to be in place about 24 months before the sale. That covers who owns the shares, whether your spouse owns shares, and moving passive assets such as excess cash, investments and real estate out of your operating company (CRA guide T4037).
We describe the 24-month rule as a slow cooker. You can't add the ingredients and serve dinner the same hour. The CRA wants to see a structure that was built for sound business reasons over time, not one assembled the week before a sale.
- 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.
- Your spouse owns shares, if you plan to use two exemptions. This is usually set up through an estate freeze or share reorganization, and it has to be done correctly, so this is CPA work.
- Passive assets are removed from the company whose shares will be sold. This is called purification, 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, while property used in your own business generally counts as active.
- A family trust is settled, if one suits your situation and business size.
How do you prepare a business for sale in months 1 to 3?
SHORT ANSWER
To prepare a business for sale, see it the way a buyer will, then fix what you can before anyone outside the company looks. That means clean financials, documented add-backs, reduced dependence on you, and sale materials ready by month three. This phase shapes your final price more than any other.
How do you 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, with a document behind every adjustment
- Revenue by customer by month, which buyers rebuild 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 first, so surprises become talking points instead of price cuts.
What number do you need to know before you sell?
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. Your minimum should be based on proceeds, meaning what you keep after debt, fees and tax.
A shortfall found five years out is a planning problem you can solve. Found six months before a sale, it often means a failed deal or a delayed retirement.
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, and your business's specific traits decide where you land inside it.
What moves you toward the top: contracted recurring revenue, a broad customer base, low owner dependence, a capable management team, proprietary systems and strong growth. What moves you toward the bottom: a few customers making up a large share of revenue, project-based revenue, declining sales, poor records and a business that runs through you.
How do 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. When the owner makes every decision and holds the key customer relationships, buyers lower the multiple and ask the founder to stay on after the sale.
A business that depends on you isn't an asset, it's a job you're personally liable for.
What legal work and sale materials do you need?
- Minute books current and the shareholder agreement reviewed
- Customer and supplier contracts checked for change-of-control clauses
- Employment agreements in place, with non-solicit terms for key staff
- Shareholder loans repaid and tax filings current
By month three, you should also have a teaser (a short, anonymous summary), a confidential information memorandum (CIM) and a data room ready. See how we run this phase in our sale process.
How do you find buyers for your business in months 4 to 6?
SHORT ANSWER
You find the right buyer by building a targeted list, releasing information in stages, and creating competition before committing to anyone. Collect non-binding Expressions of Interest from several buyers before you sign an exclusive letter of intent. That is how you keep your leverage.
- Strategic buyers, such as 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.
For many buyers, the lender sets the ceiling, not the comparables. A buyer who names a limit on the multiple is often reporting what the bank approved, so the useful conversation is about structure, such as vendor financing.
Confidentiality is handled in stages. Buyers see an anonymous teaser first, interested parties sign a non-disclosure agreement (NDA) before receiving the CIM, and only the most serious buyers get management meetings.
Sellers rarely lose leverage at the negotiating table. They lose it at the letter of intent (LOI), because most LOIs include exclusivity. That's why we ask buyers for Expressions of Interest (EOIs) first, so you can compare options while competition is still alive.
Not sure who should run this for you? See business broker vs M&A advisor.
What happens in due diligence and closing, months 7 to 12?
SHORT ANSWER
During due diligence, your chosen buyer checks everything you've told them: financials, tax, contracts, customers, employees and operations. Closing then means signing the purchase agreement, receiving your funds and handing over the business. Keep the business performing throughout, because a sales dip gives the buyer a reason to cut the price.
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, because shorter is better for you.
| Payment type | What it is | Seller's risk |
|---|---|---|
| Cash at closing | Paid on closing day | None. This is the only certain money |
| Vendor financing | You lend the buyer part of the price | Depends on the buyer's performance, usually ranks behind the bank |
| Earn-out | Paid only if future targets are hit | High. You no longer control the business that has to hit them |
| Rollover equity | You keep a minority stake in the buyer's company | Illiquid, and paid out on the buyer's timeline |
| Holdback or escrow | Part of the price held to cover your obligations | Released on schedule, reduced by valid claims |
What is the difference between the offer price and what you receive?
The number in the LOI is enterprise value, and what lands in your account is equity value. To get from one to the other, subtract interest-bearing debt, add surplus cash, adjust for working capital against the agreed target, and subtract debt-like items and transaction costs.
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. After closing, the actual figure is compared to the peg, and if it comes in lower, your price drops dollar for dollar. Agree the method in the LOI.
What causes a price cut?
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
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. For more, see why deals lose value in due diligence.
What should you know about the purchase agreement?
Your lawyer leads the agreement, but understand the statements you make about the business (representations and warranties) and what happens if one proves wrong (indemnities). Your disclosure schedule is your best protection, because anything properly disclosed generally can't be claimed as a breach later. Agree your transition role and timeline in writing.
How is the sale of a business taxed in Canada?
SHORT ANSWER
On a share sale, the gain is usually taxed as a capital gain, and half of it is taxable (Prime Minister of Canada). The Lifetime Capital Gains Exemption (LCGE) can shelter up to $1,275,000 of that gain per person in 2026, if your shares qualify (CRA). An asset sale is taxed inside your corporation first, which usually means more total tax.
What is the Lifetime Capital Gains Exemption in 2026?
For 2026, the limit is $1,275,000 per person, indexed to inflation each year (CRA indexation table). The CRA calls it the capital gains deduction, claimed on line 25400 of your return.
The proposed increase to the capital gains inclusion rate was cancelled in March 2025, so half of a capital gain is still taxable (Prime Minister of Canada).
Do your shares qualify?
To use the LCGE, your shares must meet the CRA's tests for qualified shares (CRA guide T4037). 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.
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 (CRA).
Can you sell your company to your own holding company?
Not to use the exemption. 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, and the LCGE does not apply to dividends. 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.
| Factor | Share sale | Asset sale |
|---|---|---|
| Seller's LCGE | Available if shares qualify | Not available |
| Buyer's tax deductions | No step-up | Step-up in asset values |
| Liabilities | Buyer takes the company as is | Buyer picks what to take |
| Tax recapture | Avoided | Triggered for the seller |
| Customer and supplier consent | Usually not required | Often required |
| Employees | Continue automatically | New offers needed |
| Speed | Usually faster | Usually slower |
Sellers usually prefer share sales, and 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 that leaves you close to where a share sale would.
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 (CRA guide T4037). Earn-outs are taxed differently and can be complex, so raise them with your CPA before the LOI fixes the structure.
What this means for you
Start at least two to three years before you want to sell. Tax structure needs 24 months to qualify, and reducing owner dependence takes 18 to 36 months. Use this checklist to see where you stand today:
| Financial | Legal | Tax | Operational |
|---|---|---|---|
| 3 to 5 years of CPA-reviewed statements | Minute books current | Filings current, no CRA issues | Processes documented |
| Personal expenses removed | Contracts checked for change-of-control | Qualified share status reviewed | Management team in place |
| Add-backs documented | Employment agreements in place | Purification done 24+ months out | Key staff retention plan |
| Revenue by customer tracked | IP registered | Shareholder loans repaid | Customer relationships held by the team |
Our approach is simple: freedom first, strategy second, sale last.
