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Tips for Buying a Business in Mississauga

Special thanks to Bode Odetoyinbo, Lawyer and Notary for providing this article.

Mike’s local Mississauga Tim Horton’s is always packed. Tim Horton must be making lots of money. His cursory inquiry reveals that the business is for sale. The entrepreneur in him comes alive.  He knows he wants to own his own business. He now wants this Tim Horton’s at all cost!  It certainly looks profitable. My advice to Mike is be careful. Regardless of whether he wants to buy a solid franchise or an existing private business, here are a few critical things he must do or ask himself:

General information

  1. He should be very honest with himself and ask why he should buy this particular Mississauga business and not another?
  2. What are the advantages and disadvantages of purchasing this Mississauga business? He should compare the cost of buying this existing business with the cost of starting a new business.
  3. What if any, are the liabilities of this business if he buys it? What are its assets? Who really owns these assets?
  4. How can he make this Mississauga business even more profitable? And at what cost?
  5. Mike is advised to seek the advice of competent professionals at an early stage of the process – Involve a business lawyer, accountant, business valuator etc as soon as he has answers to the questions above.

The Vendor

  1. Mike is advised to actively seek the real reason the Vendor is selling the business. Mike must remember that once the deal is signed and money changes hands, so does power. He must negotiate from a position of strength and be prepared to walk away from any “deal”.
  2. What is the reputation of this business or of the vendor if it is a service business? Where can he discover that information? From every possible source – suppliers, past and present employees, competitors etc. The more due diligence Mike does BEFORE putting in an offer, the better informed he is.
  3. Does this business require the presence of the Vendor’s principals for a smooth and orderly transition? If so, Mike must be prepared to sign a consultancy agreement with the Vendors as part of the purchase and sale agreement. This way Mike is assured of post sales support and training on agreed terms.

Lawyers and Legal considerations

This section is critical to Mike’s success.

It is always cheaper to involve a business Lawyer BEFORE making an offer than after. (S)he will amongst other things do the following for Mike:

  • Put together a proper offer that protects his interests.
  • Guide him regarding an appropriate structure for the business (Sole proprietor, corporation, partnership etc)
  • Ensure that the assets of the business such as customer lists, intellectual property, goodwill, equipment, etc are protected and properly transferred.
  • Ensure that all pre-sale conditions are satisfied e.g. complete list of business  assets, appraisal reports, taxes, employee issues etc
  • If Mike is not buying a business that owns the real estate from which it operates, his  Lawyer will ensure that the vendor obtains consent of the Landlord to assign the lease and  renegotiate the lease where possible as part of the deal
  • The business Lawyer will conduct bankruptcy searches, personal property security searches, corporate and other searches to discover if there are liens on business assets and ensure he obtains clean title to the business.
  • Examine all documents that affect the business thoroughly.
  • Advise him about closing costs, employees’ compensation arrangements and Canadian government withholdings.
  • Ensure that all legal obligations, licensing requirements, and permits are in place on closing the sale.
  • Finally Mike’s Lawyer will guide him and execute non compete, non solicitation and confidentiality agreements as appropriate from the Vendor in addition to binding representations, warranties, indemnities, covenants and conditions.

Accountants and Vendors Financials

  1. I always advise that all financial information provided to Mike by the Vendor must be reviewed by an accountant or other knowledgeable professional. This person will be able to address and advise him about the accounts provided. He will also answer these questions? Is this business really profitable? What are the recurrent expenses of the business etc? If Mike does not have a good grasp of accounting, he is advised to pay an accountant to tell him as it is.
  2. Has he been provided with financial statements (audited or pro-forma) for the Mississauga business? Ideally he should request financial statements for the past three fiscal years.
  3. His accountant will interpret and advise about the “quality” of the financial statements including the quality of the business’ receivables vs. bad debts and seasonality of the business vs. consistency of business sales.

These are some of the critical issues in buying an existing business. It is not an exhaustive list nor is it intended as legal advice. Consult qualified professionals who can provide their opinion about the proposed business purchase.

Bode Odetoyinbo is a Mississauga Ontario based Lawyer. He can be Consulted at 905-487-6333. See also www.lawyer4me.com and bode@lawyer4me.com.

Keller Williams Real Estate Associates.
BUS 905-812-8123
FAX 905-812-8155 DIRECT 905-785-7282
E-MAIL : mailto:gail@gailsellshouses.com?subject=Mississauga
Website : www.gailsellshouses.com

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