Buying an Existing Small Business

business4saleThere are basically two ways of buying an existing business – buying an existing business or buying a franchise (new or existing). With a non-franchise business there is less support than with a franchise business, but there are also no franchise fees and/or royalties to be paid. For the purposes of this blog, we will not be looking at manufacturing or inventory-based businesses, but more service-based small businesses.

One of the first steps that someone taking over an existing small business should consider is to do a review of its history and the way it operates. This means having a thorough look through its’ financial statements (this is best done by an accountant who knows what to look for). The buyer should also review the operating documents and practices. Some of the items to be reviewed include:

Accounts Receivable

  • Reviewing the accounts receivable and accounts history will help to determine if the business is relying on a large customer base or a small group of loyal customers.
  • If there is a large number of accounts that are overdue, by trying to determine the reasons for the overdue accounts, the buyer can establish the accounts receivable risks.
  • Review the business’ credit and collections policies and determine if they are being followed or exceptions are made because of the high volume of business received.
  • The buyer should contact some of the accounts to determine customer satisfaction and understanding of their credit needs.

Accounts Payable

  • In order to find out the debts and credit ability of the business, the buyer should obtain a schedule of accounts payable and determine where most of the accounts payable are owed.
  • It is also important to determine the age of amounts and if there any accounts past due for pricing or other reasons.
  • Review transactions to determine undisclosed and contingent liabilities.

The Business’ Accrued Liabilities

The potential buyer should be provided with a schedule of accrued liabilities. Determine the accounting treatment of:

  • What will be the unpaid wages at the end of the current period?
  • What is the accrued employee vacation pay?
  • Are there accrued paid sick days owing?
  • How current are they with payroll taxes and source deductions? Are they due or payable?
  • Does the business have accrued Federal and Provincial income taxes?
  • Do they also have accrued EI, WSIB or CPP payable to the various agencies?
  • Check other accruals like GST or HST that can either be submitted quarterly or annually.
  • It is also important for the accountant to look for unrecorded accrued liabilities, such as severance pay that will be done when key staff do not stay after the sale.

Income Statements

The profit/loss statements for the past 2 -5 years are a good indication of the viability of the business and performance over that term. Tax returns can also give you an insight into profit and losses, as well as the earning power of the business. Knowing if the business has been audited or providing audited statements for compliance purposes can also help in determining its viability.

Other Business Considerations When Buying an Existing Small Business

Real Estate Holding or Leases

  • Obtain a schedule of all property that is owned or leased.
  • Are you in the right office space for lease that best facilities employees to properly service their customers?
  • It is important to have the condition and age of the real estate appraised in order to establish the fair market value of each of the buildings and lease holdings.
  • Use a title search firm to conduct a complete land titles’ search for any liens or encumbrances, even on a property that is leased.
  • The buyer must also know if the business can be leased from the previous owner.

Staff and Key Personnel

When buying an existing small business, a buyer needs to know how many employees (if any) they are inheriting and what the details of their compensation and benefit packages are. A buyer also needs to know what key employees will remain with the company and what their job roles and responsibilities are. What are the future office needs for grown in personnel?

Intellectual Property Holdings

The seller of the business should have a prepared list of trade secrets, trade names, trademarks, logos, copyrights, patents, industrial designs, formulas and even domain names they own. In terms of patents and other intellectual properties that have expiry dates, it is important to know how much time is remaining before each expires in order to establish their value to the business.

Marketing and Business Reach

  • A buyer must establish if there is a geographic restriction on the marketing and sale of the service because of franchise agreements or product royalty holder restrictions.
  • The business owner should be able to provide market share facts as well as projected sales and future product/service improvements.
  • Someone selling a business should be able to identify the company’s competitive advantages, and more importantly the disadvantages it faces.
  • The current business owner should also know the current market trends and what impact, if any, they will have on the company’s future sales and market share.

Competitors and Competitive Advantage

Having a list and understanding of who the business’ competitors are and how they stack up in terms of market share as well competitive advantages and disadvantages, will provide a better understanding to a buyer of just where they fit in.

 Conclusions

The more homework you do when considering purchasing an existing small business, the better you will know if it is the right decision and investment.

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Hotels

1. Jennifer Smith
General Manager
The Omni King Edward Hotel
37 King Street East
Toronto, ON
M5C 1E9
Tel: 416-863-9700
Website: www.omnihotels.com/hotels/toronto-king-edward

2. Mark Perry
General Manager
Executive Hotels and Resorts (Boutique)
8 Colborne Street
Toronto, ON
M5E 1E1
Tel: 416-350-2419
Website: www.spazen.ca or www.cosmotoronto.com

3. Emeline Boul
General Manager
Hotel Victoria (Boutique)
56 Yonge Street
Toronto, ON
M5E 1G5
Tel: 416-363-1666
Mobile: 647-574-5832
Website: www.hotelvictoriatoronto.com

4. Omkar Sawant
Reservations Manager
One King West Hotel
1 King Street West
Toronto, ON
M5H 1A1
Main: 416-548-8100
Reservations: 1-866-470-5464
Website: www.onekingwest.com

5. Van Nguyen
General Manager
Cambridge Suites Toronto
15 Richmond Street East
Toronto, ON
M5C 1N2
Direct: 416-601-3757
Hotel: 416-368-1990
Website: www.cambridgesuitestoronto.com

Restaurants

1. Michael Pagliaro
Carisma (Italian)
15 Toronto Street
Toronto, ON
M5C 2E3
Tel: 416-864-7373
Website: www.carismarestaurant.com

2. Patti Shaw
Terroni (Italian)
57 Adelaide Street East
Toronto, ON
M5C 1K6
Tel: 416-203-3093
Website: www.terroni.com

3. Declan
Restaurant 20 Victoria – Michelin guide approved
20 Victoria Street
Toronto, ON
M5C 2A1
Tel: 416-804-6066
Instagram for reservations: https://www.instagram.com/twentyvictoria/

4. Mana
Nami (Japanese)
55 Adelaide Street East
Toronto, ON
M5C 1K6
Tel: 416-362-7373
Website: www.namirestaurant.ca

5. Restaurant Lucie
100 Yonge Street
Toronto, ON
M5C 2W1
Tel: 416-788-9054
Website: www.restaurantlucie.com

6. Niam H
Cantina Mercatto
20 Wellington Street East
Toronto, ON
M5E 1C5
Tel: 416-304-0781
Website: www.cantinamercatto.ca

7. Siva Sathasivam
Uncle Tony’s
38 Wellington St E
Toronto, ON
M5E 1C7
Tel: 416-455-6650
Website: https://uncletonys.ca/

8. Pizzaiolo
104 Yonge Street
Toronto, ON
M5C 2Y6
Tel: 416-860-0700
Website: www.pizzaiolo.ca

9. Robin Singh
Woods Restaurant and Bar
45 Colborne Street
Toronto, ON
M5E 1E3
Tel: 416-214-9918
Website: www.woodsrestaurant.ca

Health and Wellness

1. Thom Tullo
Morpheus8 by Inmode
47 Colborne Street
Toronto, ON
M5E 1E3
Tel: 416-863-6564
Website: www.amanspa.ca

2. Altitude Athletic Training
56 Colborne Street
Toronto, ON
M5E 1E3
Tel: 416-366-3838
Website: www.altitudeathletictraining.com

3. Physioheath Studios
33 Victoria Street, #130
Toronto, ON
M5C 2A1
Tel: 416-368-2525
Website: www.physiohealth.com

Our Amenities

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   18 King Street East, Suite 1400

      Toronto, Ontario   M5C 1C4 Canada

    • 18 King Street East is a boutique Class A building – East of Yonge: easy street parking, less traffic, excellent restaurants and lovely parks – St. James Park @ Church & King and Berczy Park @ Wellington East, Scott and Front Streets – Very high energy and engaging area
    • A few steps (a few seconds) to the Yonge Street subway/underground PATH network and streetcar available outside building
    • Building is located in Toronto's vibrant financial district
    • Plenty of parking available in the area including street parking and reserved parking in the 18 King building 
    • Adjacent to the building huge outdoor food courtyard - Beer Bistro www.beerbistro.com and Craft Beer Market www.craftbeermamrket.ca restaurants and bars with onsite catering services
    • Onsite amenities:  Tim Horton's, Beer Bistro, Convenience store and Starbucks across the street 
    • Nearby amenities:  underground PATH network, numerous restaurants, banking, Starbucks plus a wide array of nearby shops and services 
    • New modernized office layout fully furnished with meeting spaces and training rooms plus café lounge area
    • We are leaders in the service of training/meeting rooms with full conference facilities, high quality hot and cold catering
    • Largest training room and conference facilities accommodate up to 60 people classroom style
    • Ultra-high-speed - 1 GIG pipe = 1,000 x 1000 fiber-optic network, which will deliver internet connection speeds faster than most North American services
    • Private shower room
    • Indoor Reserved Parking at the current building rental rate
    • Bicycle parking
    • Rent a space to accommodate your team for meetings, training sessions, corporate events or coworking space or flexible office space for one day, one week, one month or one year, or whatever term suits your business
    • Telsec has over 650 locations in 40 different countries worldwide available for their clients.  Office clients receive up to 8 hours of meeting space per month at no charge at any ABCN member location.  Plus, Office and Virtual Office clients may rent a space from any member location at special member rates which varies depending on the location 
    • King Edward Hotel is located across the street - recently completed a $40 million renovation and boutique hotels close by within walking distance
  • Dining and entertainment at high quality restaurants only minutes away – Carisma, Terroni, Woods Restaurant & Bar and Michelin Rated - Restaurant 20 Victoria. Plus numerous lunch and takeout eateries nearby

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You are welcome to drop-in any-time, a quick call would be appreciated to ensure our availability Vanessa 416-574-1112 or Josie 416-606-4349 or e-mail josie@telsec.net.