How to Buy a Business in Hamilton
When considering how to buy a business it is important to know that you are getting into a business that suits your needs and produces solid reliable earnings.
We will guide you through your purchase with a proven process and help you make the right choices to find a business that is right for you.
You will likely have many questions. What is a good business for me? What businesses can I afford to buy? Will this business provide the income I need to support my life? Which type of business will I enjoy owning? Will the business bring a strong ROI – Return on Investment? What is the best way to finance the purchase?
We will help you understand how to buy a business in Hamilton or across Canada.
The Steps to Buy a Business That is Right for You
Once you decide to explore owning a business it is a great time to learn how to buy a business that is right for you. Like so many this may be your first time purchasing a business, it is exciting and will change your life, it also raises many questions and having a proven approach along with some great advice is invaluable.
Please explore how to buy a business in the area below and reach out to Sunbelt Business Brokers Hamilton for some experienced guidance. We invite you to take your understanding of how to buy a business deeper by downloading our book Insider Tips for Buying a Business in Canada by visiting our corporate site. Best wishes and let us know how we can help.
Is the idea of owning your own business exciting? Does being your own boss sound appealing? Are you ready to turn your dreams into reality while creating your own security and financial independence?
It’s a Big Decision. The decision to buy a business is not one to be taken lightly. It involves serious personal evaluation, planning, strategic thinking and a wide range of financial, legal, tax, lifestyle and emotional considerations that can be quite perplexing.
To get started consider your own personal goals related to buying a business:
- Do your strategic, personal, and financial planning before getting started
- Soul searching is essential to determine exactly what your goals are in buying a business, and what you really want to achieve
- Consider carefully what the implications will be on your life, lifestyle and family
- Be certain that you’re prepared to make the sacrifices and take the risks required to be a successful entrepreneur
- Carefully consider your abilities, tolerance for risk and passion for the long run
What size and type of business will work for you? This depends, to some extent, on your previous experience and your financial resources, lifestyle aspirations, family support and skills.
But more than anything else, it depends on what you enjoy doing. Imagine a day as the owner of a business. What do you spend the day doing? With whom do you interact?
Once you have determined your own wishes in buying a business the search begins. Review businesses for sale and consider if that business will be a great place to exercise your passion, provide or be a step to the lifestyle you want, and is a business where your skills align to enhance the business.
An experienced business broker with access to a range of quality businesses can help identify the right business for you. A great way to start is to view businesses for sale in our View Businesses area and see which businesses you find appealing.
At this point it is good to understand How to Buy a Business. This is a brief outline and for greater detail please read Insider Tips of Buying a Business in Canada available on our corporate site.
When you first meet with your business broker, they will ask you to sign a confidentiality agreement.
Confidentiality is critically important in the buying and selling of a business.
To identify the right business opportunity, you will identify goals, aspirations, history, resources, and skills. Businesses that fit well will be discussed and you will select your preferred businesses with your broker.
Next you will be given fairly detailed information about the business. Use it to prepare questions prior to meeting the owner so you can gain a full understanding of the business.
Spend some time with your broker immediately after this meeting to evaluate the possibilities and concerns. Is this a business in which you are prepared to invest further time and effort investigating?
At this stage, your broker should give you a sample offer for review along with detailed financial information about the business, including a go-forward forecast. If you feel this is the right opportunity, take action as there are other buyers looking for quality businesses, meet with your broker to develop a non-binding, highly contingent offer based upon the information that has been provided.
The goal now is to determine if, based on the supplied information, you can come to a set of
terms that both you and the owner can live with. Do not waste your time and money on lawyers and accountants at this point in the process. The offer is completely non-binding and the deposit that will accompany the offer is refundable. If you cannot come to terms now there will be no deal and you will have saved substantially on the cost of legal and accounting advice. If you do come to terms, your financial and legal advisers will become involved in the diligence process and in drafting the agreement of purchase and sale. Your broker can recommend professionals to assist in this.
You have identified a great business and get that none are perfect and that you will never have enough information to feel 100% confident about your choice. You have decided that it is now time to make a conditional, non-binding offer. Yes, now… before due diligence.
There is no point in wasting your time, money and energy conducting diligence on a business without a reasonable agreement on the price, terms, closing date, training and transition program, vendor financing, security, assets being conveyed and other issues.
What goes into an offer? The offer will:
- Lay out the price and terms the purchaser is prepared to offer;
- Set a date for closing, with conditions and timelines to be met before closing (and perhaps some for after closing);
- Specify how and when the purchase price is to be paid and under what conditions;
- Set out expectations for the seller’s responsibilities after closing, such as training of the
purchaser or continuing employment.
Your broker will make sure you are protected and the offer will be conditional upon structuring the transaction and drafting an agreement of purchase and sale that is acceptable to both parties and their legal advisers. The offer will be conditional upon financing on terms acceptable to the purchaser and upon completion of due diligence-financial diligence, operational diligence, market diligence, legal diligence, and so on-to the satisfaction of the purchaser.
Buyers usually prefer to purchase the assets of the business-intellectual property, the right to use the name, telephone number, websites and all the tangible assets. If purchasing the assets at market value we may be able to achieve a greater depreciation expense going forward and reduce taxes in future years.
If we purchase shares rather than assets we inherit liabilities. An audit next year of last year’s tax return and financials may result in a liability to Revenue Canada. A previous employee may sue the company for wrongful dismissal or for an injury sustained on the job. There may be product liability issues.
Sellers tend to prefer a share purchase. Provided their business qualifies, this structure enables them to take advantage of the $892,218 (in 2021) capital gains exemption and potentially save considerable taxes.
We may be prepared to accept the possibility of hidden liabilities if the seller is prepared to provide significant financing for our purchase and we include a right of offset in the note. To some extent this will depend upon the exposure and risk we are assuming. If the seller has been conservative and meticulous in their record keeping and taxes, we are in a position to negotiate the structure of the transaction. For instance, in return for us agreeing to accept a share structure, we may negotiate increased financing from the seller and, perhaps, a lower price. This enables us to share in the benefit the seller achieves through a share sale.
We have now received a counteroffer and are into negotiations.
The negotiations will be conducted through our business broker-not directly, your broker will guide you through the process with advice and impartial sober thought.
We need to understand what is behind the seller’s changes-he or she may have changed the structure of the purchase from assets to shares.
Everything is negotiable BUT our goal is to acquire a business on price and terms that enable us to earn sufficient income to support our family, to service the debt to pay for the business over a reasonable period of time and to provide a return on our invested capital.
We must be prepared to walk away from the opportunity if we cannot negotiate terms that work for us.
Offers may move back and forth multiple times-each time you will learn something further about the seller’s priorities and concerns. Once you have agreement, it is time to start the next phase, which includes planning due diligence and arranging financing.
We must now plan and execute a reasonably thorough analysis of the business and the information provided. Our goal is to identify any fatal flaws, verify that the information is reasonably accurate and confirm that this business will really work for us. Professional advisers can assist us with this process, called due diligence.
A diligence plan will be provided by your broker and they will coordinate its execution, but it is your responsibility as the purchaser to carry out to your satisfaction.
You will likely want to have an accountant help verify cash flow, assets, liabilities, financial history, projections and review tax filings, associated risk, corporate structure and potential tax issues resulting from our purchase.
An experienced tax and transaction lawyer will advise us on the risks and the structuring of the transaction and the business after our acquisition. They will also review the ownership and transferability of the intellectual property.
We must confirm that the business can generate sufficient cash flow to 1) support us, 2) do the debt servicing to pay for the business over a reasonable period of time and 3) provide a return on our invested capital. If it is falling short, we must have a vision of the changes we can make to ensure it meets these needs in the future.
The list is longer and more detailed than discussed above, however you get a sense of the scope involved. The due diligence process can take anywhere from two to six weeks depending on the complexity and availability of documentation.
Keep in mind that there will always be some risks and that you are the buyer-not your accountant or lawyer. Listen to their advice and that of your business broker but the decision is yours. I have rarely heard an accountant or a lawyer recommend that a buyer proceed with an acquisition. Their job is to keep you from making a mistake or taking undue risk. The only way to avoid risk is to do nothing. You must decide if the risks are acceptable.
Expect buyer’s remorse-it will set in about two weeks before closing. You will be nervous about the cash flow, about the impact on your lifestyle and about your ability to successfully manage and grow the business. This is perfectly normal and part of a healthy process. Talk it through with your business broker.
Likewise, the seller will be experiencing seller’s remorse. They will be nervous about your ability to successfully operate what has been their business. They will be nervous about the change in their lifestyle and worried about the financing they are providing to you. They may find it emotionally difficult to let go of their “baby.” This may be a good time to touch base with the seller and your broker. Your job will be to calm the concerns of the seller.
Their job will be to calm your concerns. Everyone’s goal is to make sure this is a successful win/win transaction.
You are satisfied that this business will work for you. Your business broker will work with you and your lawyer on the legal diligence, which includes:
The Agreement of Purchase and Sale (drafted by your lawyer), the non-compete non-solicit agreement that the seller will sign, and the training and transition agreement, the terms of the seller financing note, title verification of the assets. For a more complete view we invite you to get a copy of Insider Tips on Buying a Business in Canada from our corporate site.
Through all of this, your business broker will work with you and the lawyers to manage any items that may create misunderstanding and impact the closing of the deal. It is important to work with a lawyer experienced in business transition.
Through closing you will also be assuming a lease if there is one, finalizing the financing for the purchase and operation of the business, and confirming assets and current inventory.
Expect some post-closing adjustments, this will be dealt with about 45 days after closing when you have received all of the invoices for services provided up to the date of closing.
Now you are the ready to be the business owner!
You also need to meet with the staff to advise them of the transfer of ownership and alleviate their fear of change. This is best done accompanied by the seller. I have found that most employees are pleased at the change of ownership. The previous owner may have had health issues, been “coasting” or lost the passion. In such cases change is welcome if presented in a positive manner.
I do not recommend telling employees about the sale until after closing. Too many things can go wrong and you don’t want to create fear of the unknown. If your purchase was conditional on retaining key employees you would have met with them prior to closing, however they would have committed to keeping the pending transaction confidential.
You have just purchased a business. Your first goals are to:
- Learn as much as you can from the previous owner,
- Build positive relationships with suppliers and clients,
- Understand the current systems and processes that drive the business,
- Get acquainted with staff and consultants—their individual needs, strengths and preferences.
Do not make significant changes in the business operations until you understand why things are done as they are now. This generally takes a few months.
These steps may seem overwhelming, but you do not have to do them all at once. With quiet confidence, and getting something done each day that moves you in the right direction, you will get there. And as you progress, the pace of accomplishment will increase. It will seem slow slogging at first, but as you and those around you see small steps being successful, the momentum builds to a rapid pace of business improvement.
Do you have other questions?
Be sure to visit Buyer FAQs for answers to the following questions.
- Why should I buy a business rather than start one?
- What is the real reason people go into business for themselves?
- How are businesses priced?
- What should I Look for?
- What does it take to be successful?
- What happens when I find a business I want to buy?
- Why should I go to a business broker?
- Do I need an attorney?
Are you interested in our Businesses for Sale?
Begin your search for the ideal business opportunity viewing our latest listing or browse the whole collection from link bellow.