7 Important Things You Should Know Before Buying or Selling a Business in Calgary
Calgary is a city of entrepreneurs. New startups pop up constantly, but many ambitious Calgarians choose to buy or sell an existing business to pursue their entrepreneurial dreams.
Whether you’re buying or selling a business, you face potential risks and rewards. Here are some important things you should know before taking such a big step.
4 Essential Things to Know About Buying a Business
Before you buy a business in Calgary, there are several factors to consider to ensure your interests are protected and that you’re prepared for all possible outcomes involved in the business acquisition process.
1. What business is right for you to buy?
Before you start shopping for the right business to buy, narrow down your options by deciding on a few things, such as:
- Franchise or independent business—There are pros and cons to both, but the acquisition process will look different depending on which type of business you choose.
- Industry—What industry are you passionate about? Do you have prior experience in a specific industry?
- Budget—How much are you willing or able to pay?
- Location—Do you want to buy a business in a certain area of Calgary? Does it matter where the headquarters is located? Will remote work be a part of your business?
- Skills & Experience—What are your skills, qualifications, and experience? Are you prepared to run a business?
It’s possible to find a business to buy from an online search, but the best way is through connections. A business broker has a network that can lead you to the right business. Whatever search method you choose, you definitely need patience. Don’t settle for a business that’s not a good fit.
2. What’s a fair price to pay for a business in Calgary?
Businesses are often overpriced. To avoid paying more than a business is worth, be sure to understand the business valuation. How did the seller decide on the price? What method of business valuation did they use?
- What are the estimated earnings based on historical data?
- What are the predicted future earnings?
- What is the market value of this business (compared to similar businesses in the area)?
- What are the purchase terms?
Hire an accountant, business valuation specialist, or experienced business lawyer to help you discover and minimize risks.
3. What financing options are available for buying a business in Calgary?
There are two main types of financing available for buying a business in Calgary, but some buyers use a combination of the two to purchase a business.
- Vendor financing—the seller finances the transaction by allowing the buyer to pay for the business over time
- Lender financing—a loan from a bank or other lending institution
Look into the Canada Small Business Financing Program too.
4. How can I reduce risk when buying a business in Calgary?
Due diligence is the only way to protect yourself when buying a business. It’s a process of investigation that allows you to confirm the accuracy of the business valuation and reduce risk by gaining more information about the business. You conduct due diligence after the seller accepts your offer or letter of intent to purchase the business.
There are four key components your due diligence should entail.
- Financials—Review the balance sheet, statement of receivables, payment history, assets, legal status, inventory, debts, encumbrances, and corporate taxes to get a clear picture of the business’s financial position.
- Business operations—You need to understand how the business will run moving forward. What are the existing contracts with suppliers and customers? What are your obligations to the seller or staff? Will you need to enter into new contracts? Are new permits or tests required to continue operations?
- Obligations to employees—Keeping the existing employees can smooth the transition, but it can also be a liability. Review employee records and understand what is owed to each one. Consult with a lawyer before signing a purchase agreement that commits to keeping existing employees.
- Location—Does the business own the property and/or building(s) from which it operates? If the building is leased, are you able to assume the lease, or will you need to relocate? If you’re moving the business to a new location, how will the move impact operations?
Many entrepreneurial individuals have what it takes to buy a struggling business and nurture it into a thriving company. Evaluate each business with your own strengths, weaknesses, goals, and risk tolerance in mind.
3 Tips for Preparing to Sell Your Business in Calgary
To prepare to sell your business, you need a business succession plan or an exit strategy. This adds value to your business and promotes a smooth transition to the new ownership. A business succession plan should include:
- Accountant-prepared financial records showing the profitability, projections, and financial history of your business
- Corporate legal documentation including shareholder agreements, leases, employment contracts, and other agreements
- A role succession plan that transfers business operations, management, responsibilities, and contacts to others after the sale
The Osuji & Smith law firm was established in 1980 by James Smith. In 2016, a business succession plan was established to facilitate the transition of the firm to the ownership and management of Charles Osuji. This process took over a year and resulted in a seamless transition without loss to clients or staff.
1. Don’t wait till the last minute.
Transitioning your business to new ownership takes time. Don’t rush it. Develop your business succession plan as early as possible—even before you’re ready to sell. You, your staff, your clients, and the new owner will all benefit from the time you spend planning the transition period.
2. Choose a business successor you know and trust.
There’s more to a successful business sale than getting the right price. You want the person who takes over your company to be someone with integrity, a strong work ethic, and the capacity to carry on your legacy. It’s ideal if you can sell your business to someone who has worked in your business for a while. But at the very least, sell to someone you can trust.
3. Enlist the help of professionals.
It’s easy to lose objectivity because of your emotional investment in your business. That’s why independent professionals are a valuable part of the process of selling your business. Your banker, accountant, other financial partners, and a lawyer can help you valuate your business and negotiate and facilitate the sale.
When should I contact a lawyer about buying or selling a business?
Contact a business lawyer as soon as you start thinking about buying or selling a business in Calgary. Your lawyer can save you money, identify risks, and prevent stress throughout the process, so don’t wait until negotiations have already begun or paperwork has been signed.
Calgary has recognized Osuji & Smith Lawyers as a leader in business law. In 2019, 2020, 2021, and 2022, our firm was named one of the Three Best Rated Business Lawyers in Calgary. At Osuji & Smith Lawyers, it’s our job to help you make sound decisions so you and your business can thrive. Contact us today.