Buying a small business in Canada

A business may be acquired more quickly than it can be built from scratch. There are many important and tiny details to look at before making a rational decision about buying a small business. However, you must watch out not to overspend for a business and ensure that once you acquire one you can run it. Keep in mind that certain business prospects might be deceptive if you’re trying to acquire or buy a small business. This is why it’s crucial to conduct adequate research before making a purchase. This article will cover all the important details to look at before buying a small business in Canada. 

Type of small business to buy in Canada 

There are two main types of small businesses to buy in Canada. The franchise and independent small businesses  

Franchise 

The franchises are frequently well-established companies. It might be a good decision to buy a franchise. There is less danger because the idea has been tested. Franchise sales may also be simpler. You might not face difficulty when selling the franchise in the event of failure. Moreover, customers are already familiar with the brand, so you won’t need to focus as much on increasing brand recognition or spending thousands of dollars on marketing. In addition, you won’t have to waste time sorting out small matters if you’re supported by a parent firm. This might involve creating company policies, advertising, or employee uniforms. You might also be able to get assistance from other nearby franchisees if you’re having trouble with your staff or sales aren’t moving forward.

Small Independent Business 

If you buy a small independent business, you will have greater say in how the business is operated, and you may establish your policies, select your designs, etc. You have more liberty in handling the operations and making decisions. You won’t have to give any of the income from the company’s business activities to a parent company because it is entirely yours. Lastly, you could want to buy a struggling but potentially profitable company. You will reap the benefits of your laborious efforts, which will be satisfying if you can turn things around.

What inquiries have to be made when purchasing a small business?

Now that you’ve located a company you want to buy, you want to know if doing so is a wise decision. The cost of the business should be your priority. You should think about the following factors to estimate the worth of the company you want to purchase and decide whether a business’s asking price is reasonable: Asking these questions will help you identify your small business’s requirements. 

Where is the business based, and how are the facilities maintained?

Does the location have a lot of foot traffic, for instance, if you are investing in a restaurant or retail space? Is parking available? Will the inside require any big renovations? What type of investment will you need to make if you are investing in office space, too? Does the room especially require renovation? A business that is turnkey and ready to go will be more valuable than one that requires work. The ease with which you may ship or deliver items to your clients from the company’s location is the last point to consider. These factors will all have an impact on the price.

What sort of standing does the company have?

If consumers already have favourable impressions of the business, it will be more valuable to you. To check the standing, searching for reviews on Google and Facebook may help you quickly learn what clients think of the company. Even if the evaluations are largely favourable, it is a good idea to speak with a few clients directly to find out what they think of the business because internet reviews aren’t always trustworthy. The value of the firm will be harmed if it receives a lot of bad reviews. Since you will need to put in more effort to win back the confidence of your prospective consumers, you will have more work to perform. Additionally, you might need to spend extra money on rebranding the company.

When purchasing an existing small firm, is GST/HST due?

You and the person selling the business might be able to avoid paying GST/HST on the transaction if you buy a business or a portion of a business and obtain at least 90% of the property that is reasonably essential for the business. Use form GST44, Election Concerning 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 election is not available to you. 

In order to qualify, you must purchase more than 90% of the company’s assets; purchasing only the assets is not an option. Additionally, the property you bought in accordance with the sale agreement must still allow you to run the business. Additionally, you must submit Form GST44 before the deadline for filing your GST/HST return for the first reporting period of your new business. Finally, purchasing shares of a corporation is another way to acquire an existing company. Most of the time, you are not charged GST/HST when you purchase corporate shares.

How can you safeguard yourself while purchasing a small company?

As was previously said, purchasing a business is risky. This is due to the fact that the success of a business cannot be guaranteed. Additionally, when ownership of a firm changes, it may have an impact on employee morale and public opinion. Not to mention any liability you may face if the prior proprietor took shortcuts or didn’t have the interests of their clients in mind. Working with a business broker might be a smart choice since they know to provide you with advice on your acquisition for this reason. The documentation associated with a company purchase deal will also be handled by a reputable broker, who will make sure to take care of every last detail so you don’t have to. To further safeguard you, a reputable broker can assist you in choosing the appropriate insurance.

Conclusion 

In this blog, we have discussed buying a small business in Canada. In Canada, there are primarily two sorts of small businesses available. the individual small business and the franchise. Franchises are usually long-standing businesses. Purchasing a franchise may be a wise choice because there is less risk involved. After all, the concept has already been tried and proven, and sales may also be easier. To determine the value of the business you wish to buy, consider the following variables.

A fully operational business that is turnkey will be worth more than one that needs improvement. The last thing to think about is how easily you can ship or transport things from the company’s location. Before the deadline for submitting your GST/HST return for the first reporting period of the year, you must file Form GST44. You must still be able to conduct business from the property you purchased. Small business is a little technical, but once you get the knowledge, you are invincible.