A thoughtful process
After many years of work, you are now at the stage of selling your practice. This process requires good preparation and careful consideration, which should start long before you retire.
When to sell?
First, you have to decide when you want to sell. At age 60 or 65? One year from now, or two, or perhaps three? Or further down the road? This decision is key in terms of planning this major transaction.
Selling your practice will have tax consequences. You will have to declare any capital gain realized at the time of sale. Depending on the situation, your financial advisor may, for example, recommend different measures to defer a part of the gain or to obtain a deduction in case of a loss.
The right questions
Your professional reality
Have you found someone to take over your practice? Are you considering a gradual retirement? Are you a partner or a sole proprietor? Do you have several employees? Do you lease your office or do you own the building housing your practice? Are you selling to a family member? The answers to these questions will help determine the objectives of the sale and how you go about it.
As a seller, you must consider other factors and be realistic.
- Timeframe: It can take several months for a transaction to be finalized.
- The price: You must determine the real market value of your practice to establish a fair selling price.
- Market conditions: Market trends in your area and affordability rules are factors to consider.
- A win-win transaction: A satisfactory transaction for both parties involves finding the right buyer with whom effective negotiations can be conducted.
Set feasible goals!
Preparing the sale of your practice
Leave nothing to chance! Surround yourself with a team of professionals who understand your needs and who have the requisite expertise. You will require the services of:
- financial planners
- lawyers, notary
- appraisers (specialized firms)
You will have to inform the potential buyer about:
- the condition of the equipment
- customer or patient files (active clientele)
- the staff and other parties involved (compliance with labour standards)
- accounting records
- contracts: lease, suppliers, association, etc.
Assess the fair market value
This step is very important. Use an appraiser to help you determine the selling price of your practice. Assets to appraise include:
|Tangible assets||Intangible assets|
Types of evaluation
While some calculations are simple, appraising intangible assets is more complex. Experts use different methods to accurately assess the value of these types of assets. In all cases, the objective is to measure the real capacity to generate an operating profit or an attractive return.
The methods vary according to the situation and needs:
- Excess profits: To identify the cash flows net of tax that can be generated.
- Royalties: To determine the expected after-tax income generated using a royalty rate typical for the sector.
- Cost : To determine the size of a reasonable return on invested capital, after assessing the asset development costs.
At the end of the day, you will have to determine whether the valuation truly reflects reality and whether the negotiation objectives have been clearly identified.
Total or partial sale?
This factor must be taken into account when establishing the selling price. The conditions vary according to your situation and the type of transaction entered into.
|Type of sale||Conditions|
|Total||With or without service contract|
|Partial||Usual case for the sale of a percentage of the practice|
Sale of shares or sale of assets?
Here again, tax considerations must be taken into account, according to the type of transaction and your status (incorporated or not). The allocation of the price can have substantial impacts, as can the terms of the transaction.
If the buyer is a member of your family, special tax measures apply, since it is a transaction between related persons. For example, you could lose certain benefits such as the capital gains deduction. A thorough analysis is a must. A financial advisor can help you make sense of it all.
Your obligations as the seller
If you reach an agreement with the buyer, you will have to:
- Provide all necessary information to the buyer.
- Negotiate with the lessor if your office space is leased.
- Repay or transfer loans and/or the lease.
- Satisfy the other conditions of sale.
You have in hand all the buyer’s documents, and all the conditions of sale have been met. Now you have to organize and plan the transition. This involves a number of steps.
Among the key tasks, you will have to:
- Prepare a complete inventory of supplies, equipment, etc.
- Draw up a complete customer list.
- Organize the accounting.
- Accept the final projects of all contracts.
- Give notices and/or records of employment and T4 slips to your employees.
- Pay salaries and vacation pay.
Closing and cancellations
Several agencies and organizations will have to be informed of the end of your activities. You will have to:
- Close all your accounts: CSST, GST/QST.
- Inform the Registraire des entreprises du Québec (REQ).
- Cancel your liability insurance.
- Notify suppliers and proper agencies (cancellation of terminals, payment systems and various software products)
Above all, you must ensure that your professional corporation is informed of the transaction and comply with the regulation governing your profession.
Make things easier for yourself
When selling your practice, you must leave nothing to chance. It is a rigorous and demanding task for one person to handle. The Financial gives you access to all the resources you need to help you make the right choices.
Professionals you can trust
For more detailed answers and an in-depth analysis of your situation, place your trust in one of our advisors.