redactedWhy is “I'll just run it five more years” costing Canadian business owners millions? Many owners, told their company is worth 4x EBITDA, reason: “Why sell for that? I can run this for another five years, make more money, then shut the doors. Four times earnings collected over five years equals twenty times earnings — why take four when I could take twenty?” On the surface this seems sound. In reality, it contains several compounding errors that almost always destroy value. A concrete example illustrates why. The example: Margaret Chen, 62, sole owner of a precision machining company in Toronto with ~$18M revenue, $2.2M EBITDA and 47 employees, offered $8.8M (4x EBITDA). Her logic: “Run it five more years at $2.2M/year and extract $11M, plus keep my salary — why take less?” Here is why that reasoning fails. Error #1: EBITDA is not cash in your pocket EBITDA is earnings BEFORE interest, taxes, depreciation and amortization — not take-home cash. From $2.2M EBITDA, Margaret must subtract working capital requirements (manufacturing typically needs 15–20% of revenue — roughly $2.7–$3.6M tied up), maintenance capex ($200,000–$400,000/year), debt service and corporate taxes (Ontario active business income above the $500,000 small business limit is taxed at ~26.5%). Realistically she might extract $1.0–$1.2M annually after operating requirements — not $2.2M. Error #2: The tax treatment is dramatically different Scenario A — Sell today: a qualifying share sale gives access to the LCGE ($1.25M for qualified small business corporation shares as of June 25, 2024, indexation resuming 2026; the inclusion rate remains 50% after the proposed 66.7% increase was cancelled March 21, redactedNet proceeds are roughly $6.94M. Scenario B — Run five more years: extracting ~$1.1M annually as salary/dividends, Margaret faces full marginal rates (Ontario combined rates reach 53.53% over ~$253,414). Over five years she nets ~$2.86M — less than half of Scenario A, in nominal terms. Error #3: Time value of money A dollar today beats a dollar in five years. Selling today and investing $6.94M conservatively at 5% yields ~$8.86M after five years — without lifting a finger. The $2.86M extracted in Scenario B has a present value of only ~$2.5M discounted at 5%. The gap: $6.94M today vs. ~$2.5M present value for “run it longer.” Error #4: Five years of stable earnings is a big assumption Scenario B assumes constant $2.2M EBITDA for five years. Real threats: customer concentration (losing one of three top customers at 40% of revenue could devastate earnings), key-person risk (a 58-year-old foreman with 25 years' experience), competitive/offshore pressure, owner health (Margaret is 62) and economic cycles (a recession could cut manufacturing orders 20–40%). The buyer paying 4x today is effectively insuring Margaret against all these risks. Error #5: The dividend “tax shelter” misconception Canada's dividend gross-up and tax credit system is designed so the combined corporate-plus-personal tax burden is roughly equivalent whether income is taken as salary or dividends — the system “integrates” to prevent arbitrage. Worse, once passive investment income inside a CCPC exceeds $50,000 annually, the small business deduction begins to phase out, raising the corporate rate on active business income. The dividend strategy optimizes around the edges of a structurally inferior outcome. Error #6: Opportunity cost of the owner's time Five more years of ownership means five more years of personal involvement at peak earning age — trading health, other interests and the stress of running a 47-employee company. Valuing Margaret's time at even $300,000/year adds $1.5M in opportunity cost over five years that her calculation ignores. Why do buyers pay multiples? The buyer isn't foolish. They pay 4x EBITDA for: future earnings (years 6, 7, 8 and beyond Margaret won't collect), synergies (improvements she cannot capture), growth potential (capital she may lack), and risk tolerance (they can absorb setbacks that would devastate a sole owner dependent on the business for retirement). What is the right question to ask? Instead of “Why would I sell for 4x?” the better question is: “What would I have to believe about the future to make running this business five more years the better choice?” The answer requires perfectly stable earnings, no health issues, no key-person departures, no competitive threats, no downturns, and a willingness to work another five years at an intensity most 62-year-olds don't want. That is a lot to bet on. The math says sell. Key facts: the “run it five more years” fallacy Surface logic: 4x EBITDA over 5 years = 20x — but this ignores six compounding errors Error 1: EBITDA ≠ cash; working capital, capex, debt and corporate tax reduce take-home dramatically Error 2: a share sale accesses the LCGE; ongoing income is taxed at full marginal rates (up to 53.53% in Ontario) Error 3: net sale proceeds invested at 5% can exceed the discounted value of years of extracted income Error 4: stable five-year earnings assume away customer, key-person, competitive, health and cyclical risk Error 5: dividend “sheltering” is neutralized by tax integration and the passive-income SBD phase-out above $50,000 Error 6: five more years of owner time carries a real opportunity cost LCGE: $1.25M (June 25, 2024); inclusion rate held at 50% If this content was useful, the rest of the Selling Your Canadian Business library is one click away. Visit redacted for a monthly newsletter, audio podcast, and video interviews with Canadian advisors. Subscribe now to The Canadian Exit Briefing for exclusive articles, guides and reports written for Canadian business owners and their advisors. Pass this article along to another owner who is working through the same questions. Disclaimer: For informational purposes only; not tax, legal or financial advice. All examples are illustrative and simplified; actual results vary. Consult qualified tax and legal professionals before making business transition decisions. redacted