Considerations when buying a small business

Evaluating and purchasing businesses are among the most complex transactions conducted by Realtors.  There are too many factors to list here, but here are some of the considerations that we consider key to success:

1. Know what you’re buying:   Ownership of a business can be transferred through the purchase of shares in that business (if it’s incorporated) or by purchasing the assets of that business.   This decision will have a major impact on liabilities you assume and on taxes.   A turnkey business for sale is often acquired through share purchase, but be aware that buying the shares means you also assume any existing liabilities of the corporation, which can be a major risk.  However, for the seller, it means they can claim a capital gains exemption – and possibly pay no tax on the sale of their business.
2. Get a professional valuation of the business assets:  you may understand the industry, but only a properly qualified valuator will be able to give a good estimate of fair market value of significant assets based on their underlying value.  The difference between the price of a small business for sale and the value of the underlying assets is termed “goodwill” by the accountants.  Why is this important?   As a buyer, you want to minimize goodwill:  if more of the value of the business is in the assets, you can claim greater depreciation on your taxes, saving you money.
3. Franchise for sale:  the franchisor may have terms that govern the sale of a franchise business, and making sure that you can comply with those terms is critically important.
4. Understand the Real Estate leases used by the business:  make sure that the lease is transferable, and what terms will be offered by the landlord.  The landlord will often use the change in leaseholder as an opportunity to sign a new lease at much higher rates, possibly making the business non-viable!
5. Online business for sale:  an online business may operate in multiple legal and tax jurisdictions, so additional due diligence will be required before completing the sale.
6. Assemble a top-notch team before writing any offers:   you may need an accountant, tax advisor, business lawyer, business valuator and/or a banker – the time to assemble these professionals is before the clock starts ticking on a transaction.   (We have a collection of top-notch professionals we have worked with in the past that we can recommend.)

Contact us for assistance with purchasing a BC Business, or just to discuss the points above!