Episode 181: Why Most Canadian Business Owners Will Never Sell for Millions

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Are you actually building a business you can sell — or just a high-paying job you’ll eventually walk away from?

Many Canadian entrepreneurs dream of cashing out with millions thanks to the lifetime capital gains exemption. But the harsh reality? Most Canadian small business owners never sell — and if they do, the price tag is often far lower than expected. This episode unpacks a real-world case of a tech consultant earning 7 figures in revenue, yet struggling to make the business saleable.

By listening, you’ll discover:

• Why top-line revenue means little if your business relies solely on you
• The truth about qualifying for Canada’s lifetime capital gains exemption (and how few actually do)
• A smarter corporate structure that protects your wealth and gives you real retirement options

If you’re building a business with the dream of one day selling it — press play now to find out if that dream is really within reach.

Resources:

• Ready to take a deep dive and learn how to generate personal tax free cash flow from your corporation? Enroll in our FREE masterclass here. 
• Book a Discovery Call with Kyle to review your corporate (or personal) wealth strategy to help you overcome your current struggle and take the next step in your Canadian Wealth Building Journey!
• Discover which phase of wealth creation you are in. Take our quick assessment and you’ll receive a custom wealth-building pathway that matches your phase and learn our CRA compliant tax optimized strategies. Take that assessment here.
• Dig into our Ultimate Investment Book List
• Follow/Connect with us on social media for daily posts and conversations about business, finance, and investment on LinkedIn, Instagram, Facebook [Kyle’s Profile, Our Business Page], TikTok and TwitterX. 
  

Calling All Canadian Incorporated Business Owners & Investors:

Consider reaching out to Kyle if you’ve been…

• …taking a salary with a goal of stuffing RRSPs;
• …investing inside your corporation without a passive income tax minimization strategy;
• …letting a large sum of liquid assets sit in low interest earning savings accounts;
• …investing corporate dollars into GICs, dividend stocks/funds, or other investments attracting cordporate passive income taxes at greater than 50%; or,
• …wondering whether your current corporate wealth management strategy is optimal for your specific situation.

For Canadian entrepreneurs seeking financial freedom and early retirement, building a business isn’t just about revenue — it’s about structuring for long-term wealth. Whether you’re navigating a potential business sale, planning around the capital gains exemption, or optimizing your corporate structure, effective financial planning is essential. From salary vs dividends strategies to RRSP optimization, real estate investing in Canada, and leveraging corporate wealth planning, the right system can support a modest lifestyle wealth approach or ambitious financial independence goals. Through expert business valuation, capital gains strategies, and tax-efficient investing, small business owners can align their Canadian wealth plan with tools like financial buckets, investment bucket strategies, and estate planning. By prioritizing corporation investment strategies, retirement planning tools, and ongoing financial vision setting, you’re not just building income — you’re creating a legacy. Whether it’s consulting, real estate vs renting, or financial diversification, every decision contributes to your success in wealth building strategies Canada.

Transcript:

Many business owners believe they’ll one day sell their company and walk away with millions using the lifetime capital gains exemption. But in reality, the vast majority of small business owners here in Canada never do. In this episode, we’re gonna break down a real world example from a tech consulting entrepreneur and listener of the show making about $1 million of top line revenue per year, only to discover that

maybe her business may not be as saleable as she may have once thought. We’ll walk through the miscalculations around profit margins, and misunderstood business valuation, and the critical decision between a holding company structure or trying to preserve the lifetime capital gains exemption by holding shares personally.

Whether you’re planning to retire with $2 million or aiming for $5 million like this entrepreneur, the episode is gonna help you determine if you’re building a saleable asset or just building up a well-paying glorified job. All right, let’s dig in. So the backstory here, we had a listener reaching out through our Discovery channel on our website. So if you head over to CanadianWealthSecrets.com forward slash Discovery,

you can also submit for a conversation. Now we’re gonna call this listener Cheryl and we’re modifying some of the numbers just slightly here, but the logic and all the same strategies are going to come into play here and that’s just to, you know, keep them anonymous and ensure that there’s no way that someone could be identified here. Now there.

they reached out and this is what it said in the booking form. said, I’m consistently making $1 million a year and the money is just sitting there. But then after we got into a conversation, we found out that they have about $2 million in minimum or sorry, assets outside of their primary residence, but they’d actually rather have close to 5 million. So there’s kind of two things going on here. They’re talking about money sort of sitting in the corporation, but then they’re also talking about

you know, some of their wants and their goals in terms of retirement. So we had a lot of things to cover here, but first and foremost, as we dig down this rabbit hole, this individual is a consultant and it’s a technology consulting company. And as I mentioned, does about a million dollars of top line revenue. And initially on the call, they stated that they have around a 50 % margin, which should mean

around $500,000 of net operating income, which would be a very nice amount of profit should they consider selling this business. Now, when we dug in a little bit further, unfortunately what we found out is that that was a 50 % margin before paying her and her spouse. Her and her spouse are the primary employees of the business.

And after paying themselves, they are left with about $200,000 or 200, yeah, about $200,000 of income, net operating income inside the business. So that profit margin is actually very, very different compared to what was initially stated. This is really important because in their minds when they first reached out on the call,

They were trying to figure out first off, what do I do with the sitting money inside the corporate structure? So we’ve talked about that before on the show. We’ll dig into that a little bit further here. But more importantly, there was this idea that the million dollars of revenue is sort of the number that we’re going to use in order to determine what this business could be sold for. Now, there’s a lot of problems here when we’re starting to think about the lifetime capital gains exemption offered here in Canada for

those who are maybe new to that conversation, if you own shares in an active business, an active small business here in Canada, you can actually access your lifetime capital gains exemption if you sell the business and there’s a capital gain of up to $1.25 million. So that’s recently changed. It typically changes with inflation over time.

It used to be before, you know, a few years back, it used to be less than a million. Right now we’re at about $1.25 million. Meaning if you sold your business for a $1.25 million, and let’s assume that the business was valued at $0 when you first opened this business, there would be a capital gain on that $1.25 million. And basically what this exemption does is it allows you to essentially pay zero tax on $1.25 million. Now,

If let’s say you sold the business for $2.5 million, right? Half of that, 1.25, would be tax free, and the other half would require capital gains to be paid. As of today, as of this recording, you’d have to pay on 50 % of that portion above $1.25 million, right? So you’re gonna pay on half of $1.25 million, but not going to pay 50%.

in taxes. So you’re going to pay your tax rate at whatever half of $1.25 million would be right. So just over $600,000 would have to be taxed. Okay, so there’s a huge advantage to utilizing the lifetime capital gains exemption and a lot of small business owners like myself think about those things and think, you know, I really want to make sure that I am able to utilize that if I possibly can. However,

there’s a number of issues that often happen. First off is how saleable is the company really? So in this particular case, it’s a tech company and basically there’s two people in the business doing all of the work. Now I would argue that they’re paying themselves a good wage and they still have about $200,000 of revenue that you know is, or sorry, net operating income that is being generated. So there’s still some money to be had here. However,

We can’t really rely on that $1 million of top line revenue number to be sort of the number that’s going to determine how much this business is really worth. And when it came down to it, a lot of the business and the revenue is being generated by contracts. So basically, they have to go out and they have to get these contracts. And once they have the contracts, then they fulfill the contracts.

And the part that makes this business a little bit challenging is that until they’re able to remove themselves from the business, have other people working in the business doing what it is that they do best, which is consulting and technology. Until then, it’s gonna be very difficult to find someone who’s going to want to purchase that business, right? Because the purchaser has to figure out how are we going to replace…

the husband and wife who are doing all of the work in this particular business, right? There’s really no business to be had here. So initially they had these thoughts around being able to sell this business for maybe, you know, maybe a million dollars, maybe a million and a half dollars. And that would be fantastic if they can get their business to that place. However, some things that I think are really important to, you know, consider and think about are that.

the vast majority of Canadian small businesses actually aren’t sold. And if they are sold, they’re not sold for a significant amount of money because they’re not in a position where the business is worth investing in. In this particular case, what we have is we have two people that are

creating an amazing business for their lifestyle and their world in order to create income for themselves, as well as to create money to continue to grow their wealth at the same time. Those extra retained earnings can be utilized in order to invest in other assets and to prepare themselves for retirement when they’re ready to walk away. Until they actually take the time

to systematize this business to one where someone could come in and buy this business and earn money from the business without actually having to run the business themselves. know, there’s varying degrees here when we talk about running the business. Typically, someone would come in, they buy the business, they are going to manage the business, just like a manager of real estate would come in to manage the property.

but they’re not going to be in the work each and every single day. They want to pay money in order to get a return from that. Nobody wants to go in and actually pay money in order to get a really good job, right? What they’d be better doing instead of trying to find a way to sell this business is really whoever it is that you think might be interested in buying this business.

is probably better off coming into the business, working in the business, and then you can pay them to be a part of the business. And then over time, you can work out some sort of deal where they might take shares in the company, right? Again, whether it’s gonna be worth saving or preserving your shares in your personal name for the lifetime capital gains exemption or not is…

really going to be something that comes down to how likely is it that you’re going to be able to sell the business for enough money where the lifetime capital gains exemption really pays off. So what we’re going to talk about here is first off, I want to let you know as of today, according to some research we see here, about 4 % of Canadian small businesses are listed for sale. That means about 96 % of them are not. Now that doesn’t mean that could never change.

but most businesses aren’t actually up for sale or available for sale. Okay, something that’s really also interesting to think about is that only 0.13 % of Canadians actually utilize the lifetime capital gains exemption. Now a lot of people would say, well, a lot of people don’t have businesses, so that’s gonna disqualify them altogether. However, here’s something that’s really interesting as well, is that when we look at

the actual capital gains that a Canadian would create. There’s less than 1 % of Canadians that actually generate a capital gain of over $250,000 in a given year. said another way, there’s very, very few Canadians that are selling assets, be it businesses, real estate, anything for over a quarter of a million dollars in a given year.

So when you think about that and you think about how little or how low that number is, how realistic is it that you’re going to actually benefit from this particular tax savings? Now, on $1.25 million, right, if we think about that $1.25 million in the capital gains tax that you’d pay on $1.25 million, you’re looking at paying just over $300,000 in tax if you were to sell

the business without utilizing the capital gains exemption. So really what you have to think about is first of all, how realistic is it that you’ll be able to sell it and maximize the use of the capital gains exemption? And then secondly, how much are you sacrificing from year to year with the money that is quote unquote stuck inside the corporate structure? So rather than holding those shares personally for the vast majority of business owners that we work with,

We often recommend that they put a holding company in place and the holding company actually owns shares in the operating company. Any of those retained earnings from year to year can flow up to the holding company tax free. They can stay there. They can be protected from liability should the operating company get sued or have any legal issues. And you can then take those dollars and invest them however you choose. Now,

There are nuances as we’ve discussed before, right? We do not want to create any unnecessary passive income inside either of the corporations, inside the operating company or the holding company. Something else worth mentioning is that even if you personally hold the shares in your operating company in order to utilize the lifetime capital gains exemption, more than half of

the operating businesses in Canada actually don’t qualify for the lifetime capital gains exemption because there are some nuances that have to happen. One being that the majority and really what it is is 90 % of the operating income inside of the business should be active. All right, now there are some other nuances here. We’re not gonna get into them here today, but ultimately over time, basically what that’s saying is you have to make sure that you’re not generating more than 10 %

in passive income compared to the overall revenue being generated in the business in order for that to take place. Now there are ways to cleanse and there are ways to make sure that you get your business ready for sale. Typically you wanna make sure that you meet all the requirements for at least two years prior to the sale. So sometimes that will delay sales and so forth. But.

If you have a runway of longer than, two years in a business that is generating a significant amount of income that has retained earnings that are worth keeping in the corporation rather than, losing 40 % of them to more dividends or any other type of tax that you might incur, you’re better off to keep them inside of the corporate structure, ideally in a holding company. Grow your assets there. And if and when you do run into a

the situation where you are able to sell your business for a significant capital gain, then you can look at what needs to be done in order to make sure that the business is ready for that sale and still qualifies for the lifetime capital gains exemption. There are things such as share rollovers that can be done and there’s all kinds of strategies that can be done to ultimately sort of reverse the holding company holding the shares of the operating company in order to preserve

the lifetime capital gains exemption. Now you all know me if you’ve been here for a while, I’m a numbers guy, I used to be a high school math teacher and I love probability. And when I look at the probability of your business actually selling for a significant capital gain, for a significant multiple that makes it worth selling the business, I would much rather set up my corporate structure to build my wealth within the corporate structure.

We’re not going to keep everything in there. We’re still going to take money out as it makes sense. And we’re going to stuff other buckets as well. But I’m going to put my money on that. I’m probably not going to be able to sell my business for the multiples that I might like or might want in order to sell them. On the other hand as well, if your business is saleable and if someone’s willing to pay a good multiple for it, it’s probably because your business

is very hands off. means that you’ve systematized the business so well that it’s creating what people like to call passive income. Now, nothing is actually passive. We know that, but it’s creating enough income without doing a whole lot of work that someone finds value in it. If that’s the case, the question then becomes, why don’t you just keep it? And if you can design your business and get yourself to a place where you can fully remove yourself from the day-to-day operations of the business,

you don’t necessarily need to sell your business and you don’t need to take some big multiple because if it’s a worthwhile multiple, it should be over $1.25 million in capital gains that you’re gonna have to pay, which means there’s still gonna be tax to pay. And guess what? After you pay those taxes, you then have to take this big chunk of money and then you have to decide, what am I gonna invest it in? And if your thought is into a business, well guess what? You already have one and you already…

made sure that it was optimal so that you can live the lifestyle you want without putting in all of the sweat, tears and effort into the business from day to day. So hopefully you found this helpful my friends. If you are interested in having your situation reviewed and to essentially have just a holistic wealth management planning call, you should head on over to canadianwealthsecrets.com forward slash discovery.

If you do not have an incorporated business, you still qualify to hop onto a discovery call. We are getting a little more selective, I must say. So if, for example, you have yet to fill up some of the most obvious buckets for those who don’t have a business such as the tax-free savings account or the RRSP, we may not be able to fit you into the schedule at this time. However, if you’ve been growing your assets and you’re looking for

another eye to be able to look at your situation and to understand essentially where you should be going next in your wealth building journey. You should definitely head on over to canadianwealthsecrets.com forward slash discovery to book your discovery call. Now, if you’re just curious on where you are and where you need to go next in your journey, you can head over to canadianwealthsecrets.com forward slash pathways.

in order to take our Pathways Assessment, where you will be provided with a Canadian business owner financial health report, and it’ll be sent straight to your email address. We appreciate you all. Ratings and reviews go a long way, and we look forward to hanging out with you in the next episode. Just as a reminder, this content is for informational purposes only, and you should not construe any such information or other material as legal.

tax investment, financial or financial advice. Kyle is a licensed life and accident and sickness insurance agent and is the president of Canadian wealth secrets incorporated.

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What if you could lay the perfect financial foundation for your future?

Whether you’re just starting your Canadian business journey or already juggling multiple ventures, knowing how and when to scale, structure, and protect your finances can feel overwhelming. Jess and her husband, both in their early 20s, are already building businesses, planning for financial freedom by 45, and making decisions most entrepreneurs delay for years. But even ambitious starters hit walls—especially when it comes to being taken seriously and making smart tax moves early on.

In this episode, you’ll learn:

• How to decide if (and when) incorporating your business actually makes sense
• Why understanding retained earnings and tax brackets early can be your financial superpower
• The essential blueprint for setting up your operating and holding companies to fuel long-term wealth, not just short-term wins

Press play now to learn how to structure your business today so you’re not paying for missed opportunities tomorrow.

**FINANCIAL REPORT CARD BASED ON four (4) meetings with CHRIS INCLUDING three (3) from BEFORE putting a policy in force so we should adjust accordingly:

🧾 Financial Consulting Report: Chris Cameron

Client: Dr. Chris Cameron
Coach: Kyle Pearce
Period Reviewed: October 2024 – March 2025
Framework: Canadian Business Owner Financial Wealth System

1. Narrative Summary: Client Problems & Objectives

Chris Cameron, a chiropractor operating under Cameron Professional Corporation, is navigating mid-to-late career financial planning with a focus on optimizing tax strategies, leveraging corporate retained earnings, and preparing for retirement. His concerns span the utility of his existing cash and GIC holdings, potential acquisition of the building he practices in, and effective income distribution among family members.

Key objectives include:

• Efficient use of corporate cash and GICs

• Strategic building acquisition through seller financing

• Maximizing corporate structure to include a holding company and family income-splitting

• Retirement planning leveraging corporate-owned insurance policies

• Interest arbitrage and mortgage efficiency through policy loans and readvanceable mortgages

2. Kyle’s Strategy & Recommendations

Kyle Pearce

Canadian Wealth Secrets is an informative podcast that digs into the intricacies of building a robust portfolio, maximizing dividend returns, the nuances of real estate investment, and the complexities of business finance, while offering expert advice on wealth management, navigating capital gains tax, and understanding the role of financial institutions in personal finance.

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