Business Opportunities in Canada
BUYING AN EXISTING BUSINESS
If you’re thinking of purchasing an existing business, here are some things to consider.
Figure out what type of business you want to buy. It’s helpful to consider your interests, skills, and experience. The more knowledgeable and familiar you are with the business industry, model, product or service, trends, and customers, the more successful and innovative your ideas will be!
The best option is a business that also aligns with your budget, goals, and resources. Calculating the size, location, sales, staff of your prospective business is an important step in your plan to buy a business, since it will give you a scale to keep in mind when you’re shopping around. Figure out how much you’d ideally want to change a business, and assess how much that will cost you.
Complete your due diligence by gathering enough information before purchasing your business. Have an accountant review the business’s financials, including tax returns, accounts payables, cash flow statements, debt disclosures, etc. This is a good way to analyze a business’s income stream so that there is a clear path to profitability. Also ensure that the business you’re buying has all the required licenses and permits.
A final important step is finalizing the price point. It can be beneficial and helpful to call in an independent business valuation professional to make an objective determination of value. There are 3 main approaches to valuing an existing company: Earnings Approach, Assets Approach, and Market Approach. All three can be used to arrive at a fair price, one that both the buyer and seller can agree on.
SELLING AN EXISTING BUSINESS
One of the most important decisions an entrepreneur makes is deciding to sell their business. Prepare the sale of your business well in advance. This allows you time to improve your financial records, your business structure, and your customer base to make your business more profitable.
It also helps to put yourself in a buyer’s shoes; think about what they would like to see, such as strong management, future growth prospects, and solid financial information.
Throughout the process, it is helpful to consultant an accountant and a lawyer as you proceed. Get a business appraiser to get a valuation and a detailed explanation of your business’ worth. A valuator will help you to set a fair selling price, which will allow you to determine whether a buyer’s offer is reasonable.
Finding a buyer can take time, ranging from 6 months to a year for some; try not to limit your advertising and you’ll have a much higher rate of success. Once you have prospective buyers, here are some thing you can do:
- Find out whether the potential buyer pre-qualifies for financing before giving out information about your business. If you plan to finance the sale, work out the details with your accountant or lawyer so you can better reach an agreement with the buyer.
- Allow some room for negotiation, but ensure you stay firm on a price that is reasonable because you can also consider the company’s future worth
- Put any agreements in writing. The potential buyers should sign a nondisclosure/confidentiality agreement to protect your information
Negotiate a clear and detailed sale agreement with the help of your advisors. You don’t necessarily want to accept an offer just because the price is right. Ideally, the buyer will share your vision of the company, especially if you want it to thrive and be paid back your vendor financing.
