If you wish to purchase a business, you will need to spend adequate time and effort on its research, valuation and affordability aspects. After all, you would want to make sure that the particular business is the right fit for you and you have paid the right valuation for it.
Types of Business Purchase
Purchasing a business can typically be done by an asset or a share purchase. An asset purchase necessitates buying a few or all of the business assets. While in a share purchase, you end up buying the seller’s share which includes the buyer’s liabilities and debts.
The Process of A Business Purchase
The purchase process of business is structured in the following manner for the majority of business purchases:
Preliminary Negotiations & Discussions
You as the buyer will do the necessary analysis of the business, understand the value and the assets, debts and liabilities of the business. You may review the business finances to understand the value to be paid for it. A share purchase generally requires a higher level of due diligence as it includes the acquisition of assets along with debts and liabilities. Shareholder approval, government documentation requirement is reviewed and prepared in the process. You will also need to check if any third-party approval is awaited before the buyer can purchase them.
Understand the condition and the potential of a business before you decide to buy it. This will include analyzing the location of the business, the equipment possessed by them, the online reputation of the business and its goodwill.
Determine the asset value including building, shares and equipment. A detailed review of the company’s financial statements, bank statements and annual reports are essential.
Grants and financing will need to be ascertained for your business. Do take the time and confirm that the return on investment is good and the property is worth buying.
If a business is purchased with its inventory and all assets, a new Business Number may be needed. Review the type and nature of the business and the applicability of GST/HST on the business to understand its implications.
You can also enter into a letter of intent with parts of it being enforceable if you are serious about going ahead with the purchase. This letter will need to include binding promises from the seller not to negotiate with any other purchaser for a specified time period and a binding promise from the purchaser with non-disclosure clause about the seller’s trade and internal details.