Buying a business is a major decision, especially if it’s your first time. If you’re unsure what to expect or looking for guidance on how to buy a business, this step-by-step guide will help you navigate the process with confidence and make informed decisions.
Step 1: Decide Between a Share Sale or an Asset Sale
There are many popular platforms to find businesses for sale, with realtor.ca, businessesforsale.com, and Facebook Marketplace being the main ones. Depending on the type of business you’re looking for, it can take months before finding a right business. In fact, with some of my past clients, we have spent over six months searching to find the right business together.
Step 2: Getting information of the business you want to buy
Reach out to the seller or the listing agent for more about the information so you can determine if it’s the right business for you to buy. Most businesses are listed confidentially, if that’s the case you’ll need to sign a non-disclosure agreement (NDA) before you can receive information about the business.
Step 3: Conditional Offer
Once you’ve identified the right business, your broker will prepare a conditional offer to present to the seller. The offer is considered conditional because certain terms must be met before you can proceed with the purchase. These conditions are in place to protect you as the buyer. Below are some common conditions I include for my clients. Keep in mind, there may be additional business-specific conditions that aren’t listed here but can be valuable for your protection:
- Approval for financing
- Approval for lease assignment
- Satisfactory review of financial statements
Below are some examples of key terms that are typically included in a conditional offer:
- Price
- Sale structure (asset or share sale)
- Included assets and equipment
- Deposit amount and provisions
- Subject removal date
- Completion date
- Training and transition agreement
- Non-compete agreement
- Additional terms and conditions
Step 4: Removing conditions and due diligence
Typically, buyers and sellers go through a few rounds of negotiations before reaching an accepted offer to buy the business. Once accepted, you as the buyer will begin due diligence on the business while simultaneously working to satisfy the conditions outlined in the offer. For example, if your offer includes a financing condition, you would contact your bank to begin the application process for a business loan.
Once due diligence is complete and all conditions have been satisfied, you and the seller will move to an unconditional offer.
Step 5: Completion
Your solicitor and the seller’s solicitor will work together to turn the unconditional offer into a purchase agreement and begin the conveyancing process. This is the process of legally transferring the ownership of the business to you.
Once that is complete, then the transition and training period with the seller will commence according to the offer both of you agreed to.
Have questions about selling your business? Contact me for a free consultation!