HOW TO BUY A BUSINESS IN CANADA
Guest post Nunzio Presta
Are you thinking about how to buy a business in Canada? There are lots of different things to
learn and decisions to make. You’ll need to decide between a franchise or an independent small
business and you’ll need to sort through different assessment and evaluation factors.
Following are a few answers to the most common questions asked by people who are looking
to take this step.
How Much Does It Cost To Buy a Business in Canada?
There are different factors involved if you are trying to figure the cost to buy a business in
Canada. Overall, the average small business sells for 2 to 3 times what the average earnings are
for the company. For example, if a business earns $100,000 every year, they can sell for up to
$300,000 and that will be your initial cost.
Science
It’s important to remember that pricing a business isn’t an exact science. The cost involves
different factors like how motivated the seller is and the market conditions. More often than
not, a business valuator or accountant will work to put the value on the company you want.
They look at a variety of things like the profits over several years and goodwill as well as assets.
Some of these professionals use different methods to value an enterprise.
The market-based approach compares similar companies to see what they’ve sold for.
The income-based approach uses the EBITDA calculation. This stands for earnings before
amortization, depreciation, taxes and interest.
The asset-based approach calculates what your cost will be based on a company’s
intangible and tangible assets.
If you’re looking to buy a franchise, the average fee in Canada is $23,000. That’s on top of the
other costs. This number covers different charges like development and a grand opening as well
as training, support and staff recruitment. Keep in mind that if you’re looking to buy one of
these, you will often need to pay royalties either monthly or weekly to the franchisor.
Advertising
The advertising fees that you pay when you buy a franchise might include money that you need
to contribute to a collective fund. This is part of all the cash that gets placed into a bigger
budget on a regional or national scale.
Hidden
Don’t forget to ask about any hidden costs. These can include leases on equipment or facilities
that are close to expiring. If you are looking at putting together all the cost for buying a business
in Canada, don’t limit yourself to just the operations. You’ll also want to make sure to look at
financial statements so you’re not burdened with unnecessary debt.
Can I Buy an Existing Business in Canada?
Once you have decided to become a business owner, there are two options for buying an
enterprise. You can start a brand-new business or buy an existing one. The first step with the
last option is finding a business that’s for sale.
Online
These can be advertised online and in print and you can work with commercial real estate
brokers. You can also find these businesses through your connections and business or personal
networks.
Buying an enterprise that is already up and running generally means you’ll pay a fixed amount
for everything involved.
Here’s a few considerations of your thinking about buying an existing business in Canada.
Is the company worth buying? Are the products or services top-notch?
Ask if the company comes with professional and experienced staff.
Ask about the relationship the present owner has with customers. If you take over thebusiness, how will that change?
Keep in mind that you want to buy one that has a good reputation in the market.
How Can I Buy a Business with No Money in Canada?
There are several options if you’re looking to buy a business in Canada with no money. One of the first avenues is what’s called a small business leveraged buyout. This means you can leverage all of the assets of the place you want to buy to fund the purchase.
It’s important to get a lawyer who specializes in these transactions. Try to stay away from a general-purpose attorney.
Option
Seller financing is another option. That’s where the money that you need to purchase the business is supplied by the person who is selling it. There is a note involved that any cash is payable within a number of years. Usually, a new owner will make the payments using the cash flow here.
Bank
You can go to a bank or other lending institution to get the money to buy a business. However, these lenders tend to shy away from deals that are 100% financed. If you’re in that position, it might be best to look for an unsecured personal loan.
How Do I Legally Buy a Business?
You need to contact a lawyer to make sure all the paperwork is done. First off, an Agreement of Purchase and Sale needs to be written up and signed. This is the document that tells everyone involved what’s being sold and for how much.
Here’s the steps involved in the process.
Proper research is the first move. You should be looking at a list of suppliers and
customers as well as financial statements. Check out a list of employees.
You’ll also need to structure the purchase. That includes different aspects of the
business deal like the price that will be paid as well as who is involved in the buying and selling.
There are other terms that you will need to negotiate with the help of an attorney. One example is the number of employees that you want to take on. It’s also a good idea to get the seller to sign a non-competition agreement.
Keep in mind that nobody can go through this whole process by themselves. There are experts in different areas of business that can help. For example, asking a lawyer about legal advice is the right move if you can’t decide whether you want to buy a partnership, corporation or even sole proprietorship.
Nunzio Presta is the Founder and CEO of BuyAndSellABusiness.com – an online platform where people can buy and sell all types of businesses in the micro market.
See ya in the inbox!
Sebastian Amieva
M&A Expert / Investor