When an entrepreneur wants to move on, closing the business may seem like the simplest solution. However, a business that is no longer interesting to its owner can still represent an opportunity for a competitor, an employee, a family member, or a new entrepreneur.

Before announcing the closure or dissolving the company, it is therefore prudent to check whether the business, its customer base, or some of its assets can be sold.

This analysis allows for decisions to be made before the value of the business disappears.

Summary: before closing, evaluate whether the customer base, contracts, team, brand, or certain assets can be sold. A complete sale is not always necessary: an asset or customer sale can preserve some of the value. Closure becomes preferable when the business is not transferable or when costs and risks outweigh the achievable value.

Why consider a sale before closure?

The value of a business is not limited to its net profit or the equipment listed on the balance sheet. A buyer may be interested in elements that the current owner takes for granted:

• a recurring customer base;

• current contracts;

• a brand, domain name, or phone number;

• a team, permits, or documented processes;

• inventory or equipment that is difficult to replicate;

• a strategic presence in a market or territory.

BDC notably reported the case of an entrepreneur who thought her business was worthless but eventually sold her customer base to a competitor. The price was determined by the revenue generated by that customer base in the following years.

Key takeaway: a business doesn't need to be highly profitable to have strategic value to a buyer.

What signs indicate that the business might be sellable?

A potential sale is worth exploring when several of the following elements are present:

• customers would likely continue to purchase after the owner leaves;

• revenues are recurring or relatively predictable;

• operations can be transferred to another team;

• the company has a good reputation or interesting market position;

• a competitor could reduce their costs by integrating the operations;

• accounting books and contracts are sufficiently organized;

• the company owns sought-after assets.

The sale will be more difficult if the entire customer base depends on the owner, if operations are continually losing money, or if significant debts remain. However, a partial sale of assets can replace a complete sale.

Three options to compare before closing

1. Selling company shares

The buyer acquires the company itself, with its assets, contracts, obligations, and history. This option can simplify the continuity of operations, but the buyer will usually want to conduct thorough due diligence.

A share sale can sometimes allow the seller to claim the capital gains deduction if all conditions are met.

2. Selling assets or a portion of the business

The company sells certain elements: customer base, equipment, inventory, intellectual property, or contracts. This allows the buyer to choose the assets they are interested in without necessarily taking over the entire company.

However, this structure can generate tax within the company, and then a second tax consequence when the funds are distributed to shareholders. GST and QST must also be analyzed. In some sales of businesses or parts of businesses, a joint election may allow for taxes not to be collected if the conditions are met.

3. Closing the business and liquidating assets

Closure may be preferable when operations are not transferable, losses are accumulating, or the costs of a transaction would exceed the potential value.

This involves collecting accounts receivable, settling with employees and creditors, disposing of assets, filing final returns, and dissolving the company.

If you decide to close, start by preparing for the cessation of activities before canceling accounts or dissolving the company.

Consult our main guide: How to Close a Business in Quebec: Concrete Steps to Follow

How to quickly estimate sales potential?

Before commissioning a full valuation, prepare a summary overview:

1. revenues and profits for the last three years;

2. adjustments related to personal or non-recurring expenses;

3. revenue concentration per client;

4. transferable contracts, employees, and assets;

5. debts, disputes, and obligations;

6. the owner's daily role;

7. potential buyers in the market.

A competitor might value the business differently than a financial buyer. For example, they might integrate the customer base without taking over the premises, certain software, or administrative functions. The savings thus realized can make the acquisition attractive even if current profitability is low.

Concrete example

A small agency generates $400,000 in revenue, but little profit because the owner bears a costly administrative structure. A competitor already has a management team and could integrate the clients without replicating all these expenses.

For the competitor, this customer base can generate an additional margin. The value therefore also depends on the buyer.

Mistakes that destroy value before sale

Announcing closure too quickly

Employees may leave, clients may seek a new supplier, and competitors may freely take over activities you could have transferred.

Stopping investment in operations

A decline in service, neglected accounting, or unrenewed contracts make the business harder to present and transfer.

Setting a price based solely on past investment

Time and money invested do not automatically determine value. Buyers are primarily interested in future profits, transferable assets, and risks.

Dissolving the company before analyzing the sale

Dissolution ends the company's legal existence. Transaction options must therefore be examined before this step.

When is closing still the best option?

Closing can be reasonable when:

• no customer base or activity can be transferred;

• the business is entirely dependent on the owner;

• losses would continue while searching for a buyer;

• equipment has little value;

• legal or financial risks are too significant;

• the probable price does not justify the costs and delays of the sale.

In this case, it is better to prepare an orderly closure than to artificially prolong operations. The objective becomes to collect accounts receivable, maximize asset value, and avoid tax or administrative penalties.

A short analysis can prevent closing a sellable business

Before choosing dissolution, take a few weeks to document results, inventory transferable assets, and identify potential buyers. This approach will either initiate a realistic sales process or confirm that closure is the best decision.

Are you hesitating between selling and closing your business? TRNSFR allows you to present your business to potential buyers before proceeding with its dissolution.

Sources

• Government of Canada, Selling a business

• Government of Quebec, Support for buying or selling a business

• BDC, How to exit your business

This article provides general information. Consult your accounting, tax, and legal advisors before selling or closing a business.