Category Archives: Tips: buying a business

Bringing a Dream of Entrepreneurship to Canada

Alberto and Eloisa Garcia, owners of Wag, Ottawa

Alberto and Eloisa Garcia, new owners of Wag, Ottawa’s first pet friendly shop and cafe

Going from diesel repair to doggie day care is less of a stretch than you think. Why? Because the skill sets required for both are transferrable. And that’s what Alberto Garcia counted on when he moved to Ottawa from Querétaro, Mexico, to buy Wag, a doggie-themed business in Old Ottawa South. Continue reading

I Have Never Seen a Better Market…

Canadian moneyDo you own a small- or medium-sized business in Canada? Is selling and retiring on your horizon?

Great news!

In the 15 years I have been in business brokerage, I have never seen a better market for business owners who want to sell and retire or move on to other things in life.

The market is also favourable for buyers.

Here’s why:

  • Real estate, the stock market, and business are all buoyant. We’ve finally recovered from the hard knocks of the 2008 financial crisis.
  • Interest rates are at an all-time low so businesses are now more affordable.
    • Typically a buyer requires the business they buy to
      • a) have sufficient cash flow that they can live comfortably,
      • b) look after the debt servicing, and
      • c) provide a good return on their invested capital.
    • Given that low interest rates have reduced the debt-servicing component, buyers are getting more for their business purchase than a few years ago.
  • The lower Canadian dollar is attractive to people bringing money from other countries; many of our buyers are first generation Canadians.
  • The lower Canadian dollar also makes our medium- and higher-sized businesses (businesses over $3 million in revenue) especially attractive to international investors, particularly those from the U.S.For private equity groups, they’re a bargain.
  • Changes to the lifetime capital gains exemption (LCGE) for small business corporation shares reduce taxes for owners who meet the CRA criteria.
    • The LCGE for 2015 is $813,600;
    • The LCGE is indexed to inflation, up to $1 million, for tax years after 2014;
    • Many businesses are owned by a family trust or by multiple members of a family. The exemption applies to each member.

Next steps

A professional appraisal will tell you what your business is worth and its most probable selling price (MPSP). If it’s not worth what you expect or need, you may need to work on your business to increase its value. Our brokers can also help in that respect, identifying the financial, operational and organizational factors that have the most impact. The same applies to minimizing the taxes you’ll pay when you sell—we can refer you to tax advisers familiar with the options to best meet your needs.

Take the first step. Reserve a free, confidential consultation at an office near you.

Buying a Business Tip #25 : Be Realistic About What You Can Afford

BE REALISTIC ABOUT WHAT YOU CAN AFFORD. Don’t waste your time or other people’s time looking at businesses out of your price range.

The business will need to return enough money for you to make a living and service the debt incurred to buy the business. Even though the business will have an immediate cash flow, you should still set aside some extra for unforeseen expenses.

Let’s look at the following scenario:

You can provide $75K for a down payment. You need to make $50K to live on annually. Will a small business with the selling price of $150,000 and business earnings of $75,000 meet those needs? Continue reading

Buying a business: tip #24

Keep an open mind

You may start out with a particular type of business—i.e. a restaurant—or industry—i.e. food services—in mind based on information you have read or seen online. But be prepared to consider something different if another existing or emerging opportunity presents itself.

Your broker may direct you to a difference business that also suits your interests, talents, and financial expectations.

You will still need to answer these key questions:

  • Can you see yourself in the business?
  • Is there a sound financial foundation?
  • What are the opportunities and threats?
  • Can you see ways to create value?
  • Will the seller provide financing for a portion of the purchase price?
  • Will you have enough cash—sufficient operating capital in addition to the down payment?

Buyers and sellers need to be honest with each other when they go to buy or sell a business

buyers and sellers need to be honest with everyone, including themselves when they buy or sell a business

The truth is in there!

Most buyers and sellers want to do the right thing. We help them negotiate a fair deal, with price, terms and conditions that work for both sides.

A prospective buyer needs proprietary financial and operating information, including strengths, weaknesses, opportunities and threats facing the business, to make informed decisions about proceeding with an offer.  When sellers misrepresent facts, or do not disclose all issues when or if they arise, buyers become leery of continuing the negotiations. This applies to already accepted offers at due diligence. Buyers are deathly afraid of the hidden flaw. If some things are not current and correct, then they believe that nothing is to be trusted, and the deal will likely fall apart.

Both parties need to be comfortable with the other’s ability to deliver what is promised.

In most cases, the buyer will need the seller to take back a note for a portion of the purchase price. The seller needs to have confidence in the buyer to lend them money.

It’s also common for deals to include a training and transition period where the previous owners work with the purchaser for a stipulated length of time, so building a relationship of trust and respect throughout the transaction has continued importance.

And that relationship of trust has to extend to their advisers.

As I wrote about last summer, buyers and sellers end up hurting themselves when they lie to business brokers. Typically, their errors and omissions fall into one of three buckets: overstating, understating and “forgetting” to state.

When it comes to the buying or selling of a business, buyers and sellers need to be honest with everyone, including themselves. Truth is essential to building trust.

Buying a business: tip #22

Keep in mind that buying and owning a business is a family undertaking

A supportive family is essential to business success. It may be your name on the business, but buying and owning a business is truly a family undertaking. In fact, we always ask if there is anyone else involved in making this decision when we set up that first meeting with you and recommend that you include them if at all possible.

Statistics show that owning your own business is the fastest way to financial independence, while also creating the lifestyle and liberty that goes with successful business ownership. But there is still risk, and for most people, that risk to savings and future touches their family.

Especially in the early days when the business owner is directly involved in every aspect of the small business, many  work long hours. These long hours can have an impact on family relationships.

And unlike the income that comes from a steady job, the cash flow in a small business can be inconsistent. This changing income can put great stress on family relationships.