When Buying a Small Business in Canada

A company can be acquired faster than it can be built from scratch. There are many important and minor details to consider before making a rational decision to buy a small business. However, you need to be careful not to spend too much on the business and make sure that once you get one, you can run it. Be aware that certain business prospects can be misleading if you are trying to acquire or buy a small business. That is why it is important to do proper research before making a purchase. This article will cover all the important details to consider before buying a small business in Canada.

Don’t forget to talk to an accounting firm as well as a tax consultant to make an informed decision.

Type of small business to buy in Canada

Two main types of small businesses can be purchased in Canada. Franchises and small independent businesses

Franchise

Franchises are usually well-established companies. Maybe it would be a good decision to buy a franchise. The danger is less because the idea has been proven. Selling a franchise can also be easier. You don’t have to worry about selling the franchise in case of failure. Plus, customers already know the brand, so you won’t have to focus as much on building brand awareness or spending thousands of dollars on marketing. Also, you won’t have to waste time dealing with small issues if you have the support of the parent company. This may include creating company policies, advertising, or employee uniforms. You can also get help from other nearby franchisees if you are having problems with your staff or sales are not continuing.

Independent small business

If you buy a small independent business, you will have more influence on how the business is run and you will be able to set your policies, choose designs, etc. You have more freedom to manipulate operations and make decisions. You will not have to give any income from the business of the company to the parent company, because it is exclusively yours. Ultimately, you may want to buy a struggling but potentially profitable company. You will reap the rewards of your hard efforts, which will be satisfying if you can turn things around.

Don’t forget to talk to an accounting firm in Toronto as well as a tax consultant to make an informed decision.

What inquiries should be made when buying a small business?

Now that you’ve found the company you want to buy, you want to know if it’s a wise move. The cost of doing business should be your priority. You should consider the following factors to estimate the value of the business you wish to purchase and decide whether the business’s sale price is reasonable: Asking these questions will help you identify your small business requirements.

Where is the business located and how are the facilities maintained?

Does the location have a lot of traffic, for example, if you are investing in a restaurant or commercial space? Is there parking available? Will the interior require major renovations? What type of investment will you need to make if you are also investing in office space? Does the room particularly require renovation? A turnkey, ready-to-run business will be more valuable than one that requires work. The ease with which you can ship or deliver items to your customers from your business location is the final point to consider. All these factors will affect the price.

What is the position of the company?

If consumers already have favorable impressions of the store, it will be more valuable to you. To check the position, looking for reviews on Google and Facebook can help you quickly find out what customers think about the business. Even if the reviews are mostly favorable, it’s a good idea to talk to a few customers directly to find out what they think of the business, since online reviews aren’t always reliable. The value of the business will be damaged if it receives a lot of negative reviews. Since you will have to work harder to win back the trust of your potential consumers, you will have more work to do. Also, you may need to spend additional money on rebranding the company.

Is GST/HST paid for the purchase of an existing small business?

You and the person selling the business can avoid paying GST/HST on the transaction if you buy the business or part of the business and acquire at least 90% of the assets that are reasonably necessary for the business. Use form GST44, Election relating to the acquisition of a business or part of a business, to do this. If the seller is registered for GST or HST but you are not, this option is not available to you.

To qualify, you must purchase more than 90% of the company’s assets; buying only assets is not an option. Also, the property you purchased under the purchase agreement must still allow you to operate the business. In addition, you must submit Form GST44 before the GST/HST return deadline for your new business’s first reporting period. Finally, buying shares in a corporation is another way to acquire an existing company. You are generally not charged GST/HST when you buy company shares.

How can you protect yourself when buying a small business?

That being said, buying a business is risky. This is because the success of the business cannot be guaranteed. Also, when the ownership of the business changes, it can affect employee morale and public opinion. Not to mention any liability you may face if the previous owner cut corners or did not have their customers’ best interests in mind. Working with a commercial broker can be a smart choice, as they know they can advise you on your purchase. The documentation associated with the company’s sales contract will also be managed by a trusted broker who will take care of every last detail so that you don’t have to. To further protect you, a trusted broker can help you choose the right insurance.

Conclusion

In this blog, we have discussed buying a small business in Canada. There are mainly two types of small businesses available in Canada. Small sole proprietorships and franchises. Franchises are usually long-term businesses. Buying a franchise can be a good choice since it involves less risk. After all, the concept is already proven and the sale could be easier too. To determine the value of the business you want to buy, consider the following variables.

A fully functional turnkey business will be worth more than one that needs upgrading. The last thing you need to think about is the ease with which you can ship or transport items from your business location. You must file Form GST44 before the GST/HST return deadline for the first reporting period of the year. You should still be able to run a business from the property you have purchased. Small businesses are a bit technical, but once you get the know-how, you’re unbeatable.