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Buying and Financing a Business in Canada – Pro’s and Con’s and Advice!

Guest post by: Stan Prokop

Article Overview: The article provides insight into the pros, cons, and prepartion and due diligence required when contemplating a business purchase in Canada

Buying and Financing a Business in Canada – Pro’s and Con’s and Advice!

Any Canadian entrepreneur who is excited about buying a business understands the both the great potential rewards, as well as the inherent risks if a proper business analysis is not completed.

Naturally any business has to be investigated thoroughly, and the potential purchaser should make a strong effort to understand the future prospects and income and cash flow of the business. Most business people accept the fact that it’s inherently less risky to purchase an existing business than to start one from scratch. The pros and benefits are intuitively obvious: an existing business has a business model and (hopefully) a proper structure in place. Whether the firm is regressing, staying ‘flat ‘or growing, there are already existing customers!

Great care must be taken to ensure that the owners understand the true cash flow of the business being acquired. At this point in the decision cycle the business owner should be relying on three different parties to get solid advice, opinions, and research into the subject company he or she is looking to acquire. Those three parties are:

Lawyer

Accountant

Third party trusted advisor/intermediary

Solid advice from these three parties allows a prospective purchaser to ensure that the weight of evidence strongly sits on either the buy or don’t buy decision.

Many business owners and entrepreneurs choose at a certain point to enter into a different industry than that in which they have their business life experience. While there are many that can achieve success in a new industry clearly that decision should be taken carefully. It is at this point that the entrepreneur clearly needs to determine whether he or she has a strong comfort level with the business model, the industry the company is in, how the business generates cash and profits, and the ability to keep customers and, moreso, attract new customers.

If a business purchaser is keeping an incumbent management team or employee team in place there clearly has to be a strong sense that the new owner and the existing management team and personnel can work together effectively. That sort of due diligence and investigation is often much more difficult to address than the somewhat more straightforward and unemotional analysis of the firms accounting records and financial statements.

Every business purchaser makes an investment of time and money into a new business. Here is where the concept of ROI - return on investment plays a large role. That is to say, will the owner be happy and content with the new business challenge, and has he or she the ability to properly recover and grow the investment vis a vis what they are putting gin .

In a perfect world it would be great to acquire a great business without taking on new debt – that typically is not the case. Business owners should ensure they have the financing in place to make a proper acquisition.

Planning is everything, and it is strongly recommended that the business purchaser spend a decent amount of time on a business plan to track the future success of the business. Naturally this document will be of great interest to lenders also!

In summary, the risks and rewards of buying a business are somewhat evenly balance at the outset. Purchasors have a number of methods to ensure that the chances of success favor their potential investment. Properly planning, solid advice from trusted advisors and proper financing are a great way to start off any new venture.

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Article Tags: business purchase, due diligence, financing a business, pros and cons



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BDC - [quote="IWDCanada":jib6tqt9]I think if you try to do business in the Maritimes the Business Development Bank of Canada might be able to provide grants.[/quote:jib6tqt9] On that note, does anybody have any experiences with the Business Development Bank of Canada that they would like to share? I have been considering approaching them for a business loan.
Clothing Niche - Yasunori, can you dig deeper into the clothing niche? e.g. Business Casual for people 6ft and taller (men only, women only or both). Victoria Secret is big in Canada because they don't have retail Stores here and the only way to get their product in Canada is thru online purchases. They have a great Hassle-free return policy too.
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Re: BDC - [quote="Jones":255lkmrn][quote="IWDCanada":255lkmrn]I think if you try to do business in the Maritimes the Business Development Bank of Canada might be able to provide grants.[/quote:255lkmrn] On that note, does anybody have any experiences with the Business Development Bank of Canada that they would like to share? I have been considering approaching them for a business loan.[/quote:255lkmrn] I'll be working with the BDC later this month on a few projects. From what i've been told they are really great when it comes to small business. Their loans have a little higher interest but their payment terms are a lot easier to swallow. I can give you a contact if you need.
Exclusive: Interview with Results - Hi Forum Members, I'm helping start up a Business Coaching and Consulting company here in Toronto, Ontario, Canada (a Subsidiary of RSC Business in Los Angeles). As a Research and Development Intern I am required to practice my listening and interview skills by surveying Small and Medium Businesses on thier Business. This Survey is designed by RSC Business to also assist the Business being interviewed more insight into their own business. I am looking to interview about 30 businesses across North America over the span of 3 months. At the end of these interviews I will be publishing a report of the results and they will be made available for free to the Interviewees. The Report data will include responses from a minimum of 100 interviews. I would like to extend this opportunity to members of the Forum. If you would like to have this short 20-30 minute interview conducted on your Business and you reside in North America please send me an email or PM. Please contact me at andy[at]jvprosperity[dot]com to arrange our interview and to get free access to the results when they are published.


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