{"id":8870,"date":"2023-10-03T03:52:32","date_gmt":"2023-10-03T03:52:32","guid":{"rendered":"https:\/\/www.ownr.co\/blog\/?p=8870"},"modified":"2023-12-07T13:35:43","modified_gmt":"2023-12-07T13:35:43","slug":"selling-a-sole-proprietorship","status":"publish","type":"post","link":"https:\/\/www.ownr.co\/blog\/selling-a-sole-proprietorship\/","title":{"rendered":"Selling A Sole Proprietorship: A Complete Guide"},"content":{"rendered":"

Being an entrepreneur is hard work and, even though the rewards can be great, there may come a time when you want to move on from your business. Some people simply close up shop, but if you’ve built up a successful business, selling it can be a profitable way to move on to the next stage of your professional life. This guide will walk you through the steps to selling a<\/span> sole proprietorship<\/span><\/a> in Canada.<\/span><\/p>\n

Why sell your sole proprietorship?<\/b><\/h2>\n

There are lots of good reasons for an entrepreneur to sell their business, whether it’s a sole proprietorship or has a different business structure. Some common reasons include:<\/span><\/p>\n

New business opportunities\u00a0<\/b><\/h3>\n

Maybe you’ve had a great run with your sole proprietorship, but you\u2019ve come across a\u00a0 different professional opportunity that you see more potential in.\u00a0<\/span><\/p>\n

Your business has grown<\/b><\/h3>\n

Business growth is the goal of every entrepreneur, and it’s exciting when you get to experience it yourself. However, it can also present a great selling opportunity. Selling when your business experiences a high level of growth can result in a higher selling price than if you were to wait and try to sell when business is flatter from one year to the next.<\/span><\/p>\n

Lack of interest<\/b><\/h3>\n

Whether you’ve been in business for decades or for a short while, it’s always possible for your interests to change and for the daily routine of running your business day to no longer appeal to you. That’s a perfectly valid reason to sell a sole proprietorship. Running a business takes a lot of work and dedication, so it can be difficult to keep it going if you lose interest.<\/span><\/p>\n

Retirement<\/b><\/h3>\n

If a sole proprietorship has been successful, selling it can be a great way to<\/span> fund retirement as a small business owner<\/span><\/a>.\u00a0<\/span><\/p>\n

Business valuation<\/b><\/h2>\n

Business valuation refers to the process of determining the total value of a business. It’s an estimate rather than a number you can arrive at with 100 per cent certainty, but a chartered business valuator can help you get a realistic idea of how much your business is worth.<\/span><\/p>\n

If you want to be sure that an offer you\u2019re getting for your business is reasonable, it’s a good idea to hire a professional to help you with your valuation. They can also help you optimize the tax implications of selling your sole proprietorship.\u00a0<\/span><\/p>\n

There are three main methods used in business valuation. These are:<\/span><\/p>\n

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  1. The earnings-based method:<\/b> A business owner or valuator looks at past<\/span> cash flow<\/span><\/a> and forecasted earnings to establish the value of a business. This approach is useful for businesses that generate revenue worth more than the assets they own. In other words, the business’s value lies in the revenue it can generate rather than the assets, such as land or equipment, it owns.\u00a0<\/span><\/li>\n<\/ol>\n

    The annual revenue is typically multiplied by a certain number of years to arrive at a sale price. For example, a business with a yearly revenue of $500,000 a year may multiply by three years to arrive at a $1,500,000 sale price.\u00a0<\/span><\/p>\n

      \n
    1. The market-based method:<\/b> This method establishes a selling price based on the selling price of similar businesses.<\/span><\/li>\n
    2. The asset-based method:<\/b> If the value of your business lies more in the assets you own than in the business operations, this method may be appropriate. This approach is also used if a business is not generating much revenue, but money can be made by liquidating its assets.\u00a0<\/span><\/li>\n<\/ol>\n

      These only offer a starting point; your real selling price may be higher or lower depending on your specific circumstances.\u00a0<\/span><\/p>\n

      Assets you can sell<\/b><\/h2>\n

      A sole proprietorship is not a legal entity independent from its owner, the way a corporation is. This means a sole proprietorship can’t be sold off in whole or as shares. The owner of the sole proprietorship legally owns the various assets that make up the business. When it’s time to sell, it’s those assets that will be sold to another business or another individual sole proprietor.\u00a0<\/span><\/p>\n

      As a sole proprietor selling your business, this means you need to identify all of the assets you can sell. These assets include intangible things that have value and will enable the buyer to generate revenue, such as intellectual property and goodwill.\u00a0\u00a0<\/span><\/p>\n

      Tangible assets to incorporate in your business valuation include:\u00a0<\/span><\/p>\n