We handle all the legal complexities of a business purchase or sale. We close deals quickly and cost-effectively.
Business Purchase or Sale Transactions
When deciding to buy or sell a business in BC, there are a number of factors to take into consideration. It requires careful planning and preparation to ensure that both the buyer and seller have all the necessary information to successfully complete the deal.
Patrola Law has extensive experience with buying and selling independent businesses and franchises of all types and sizes across various industries:
- Restaurants & cafes
- Beauty, fitness & health
- Dental & medical
- Logistics & construction
Buying a Business
Why buy an existing business?
Pros
- Greater chance to succeed with an actively operating business rather than building one from the ground up.
- Reduces startup time because many areas of the business will be established such as trained staff, relationships with vendors, customer base, revenues & profits, and company policies & procedures
- Ability to draw on the business's history (sales, operations, management, marketing, etc) to make informed decisions.
- Allows you to leverage the reputation/brand of the business's products or services that have already been market tested.
- Increases your ability to secure financing to grow the business because it has a proven track record
Cons
- You may require a heavier upfront investment cost compared to starting your own business.
- Without proper due diligence, you may inherit a business that requires significant changes and capital to fix (e.g. outdated software & equipment, debt, cash flow issues)
- You may need to renegotiate and/or restructure staff contracts that were set in place from previous ownership.
- There may be a conflict in implementing your vision due to an existing company culture and history
What is the step-by-step process to buying and selling a business?
Step 1: Doing your own research
The first key step is to thoroughly research the business to understand its main strengths and weaknesses and evaluate the prospective business you will be buying.
You may want to obtain the following information:
- Financial statements for the last three years – to get a better assessment on the company's value and highlight potential issues
- The seller's asking price and how it compares to your own valuation estimate.
- List of current and past customers
- List of providers – such as, suppliers, vendors, distributors
- List of employees – staffing mix and qualities, tenure, salaries, etc.
- List of contracts or agreements necessary for the operation of the business
- Details of any debts, licenses and liabilities of the business
- How integral is the owner to this business?
- Are there any foreseeable changes in this business or industry?
Step 2: Determine Structure: Share Sale or Asset Sale
Deciding on the structure of the deal is basically asking:
- What is being bought – The business's assets or shares?
- Share sale – the purchase or sale of all of the company's shares
- Asset sale – the purchase or sale of some or all of the company's assets
- In a share sale the buyer will acquire all the company's assets, liabilities and obligations. In an asset sale, the buyer can be selective and choose the assets they wish to buy.
- The structure of the transaction is based on many factors. Generally, a buyer will want to buy the assets and a seller will want to sell shares. The buyer may want to buy the assets if there are unknown liabilities in the company. This allows the buyer to "hand-pick" from the company's assets and liabilities. The seller may want to sell the shares because after the share sale, the seller will have no direct responsibility for the company, other than the representations and warranties made in the purchase agreement.
- The structure of the transaction is also driven by tax implications for the buyer and seller. It is important to consult with a tax advisor prior to selecting the structure of the transaction.
Step 3: Perform Legal Due Diligence
The primary goal of due diligence is for the buyer to analyze and assess the legal risks of the target business. This provides the potential buyer with objective information to verify the seller's information, and to determine whether or not to proceed with the transaction.
A lawyer can help the buyer perform a thorough search of government and court records to ensure the seller actually owns the business's assets, and does not owe any debts for which the buyer could be liable.
These searches may include:
- Bankruptcy Office
- Bank of Canada
- BC Safety Authority
- City Hall (taxes, licenses, fire, health, and zoning)
- Court Registries
- Employment Standards Branch
- Land Title Offices
- Registrar of Companies
- Personal Property Registry
- Revenue Canada
- Superintendent of Motor Vehicles
- Workers Compensation Board
- Corporate Capital Tax
- Provincial Sales Tax
- Social Services Tax
- Employer Health Tax
- Insurance Premium Tax
Step 4: Preparing Documents and Closing the Deal
Normally the buyer is responsible for preparing the legal documents, which are sent to the seller's lawyer for review before the transaction can be finalized.
The two main documents that a lawyer will help you prepare include:
- Letter of Intent (LOI) – This is the initial document between a seller and a prospective buyer that records the main aspects of the deal. The LOI helps direct and facilitate the negotiation of the final terms.
- Purchase and Sale Agreement – This is the main contractual document that covers in detail: what terms and conditions the buyer and seller are agreeing to, how and when the purchase price will be paid, any restrictions imposed on the seller (i.e. a non-compete clause), and how to address any legal matters that may complicate the process to ensure both parties are protected.
"My passion is helping your business reach new heights."
Perpinder Patrola
With over a decade of representing small businesses throughout BC, I assist potential buyers and sellers by structuring a precise legal roadmap that supports their business goals.I understand the need for practical, cost-effective solutions and advocate strongly for my clients with this goal in mind.
Let's discuss your goals today.
Buying and Selling a Business FAQ's
How should I determine a business's valuation?
There's no single formula that determines the market value of a business. However, there are several methods that are used to valuate a business:
- Asset-based valuation – Adding the business's total value of tangible and intangible assets, minus liabilities
- Market-based valuation – Based on your business's sales revenue with comparable companies in the same industry
- Earnings-based valuation – Review the business's past earnings history to forecast its future profitability and expected value
- Discounted cash-flow valuation – Calculate the present value of a business's future cash flow
It is highly beneficial to seek a qualified valuator to appraise your business. They can help provide an accurate assessment and estimated value on the significant assets you may be acquiring.
Do I need to use a lawyer for the transaction?
We strongly advise to seek legal representation during the early stages of buying or selling a business. Lawyers can help perform due diligence and confirm if the business is properly structured, and operating in an efficient and business-like manner. Lawyers are also able to assist in drafting and negotiating the purchase and sale contract to ensure all necessary provisions are included.
When is it a good time to sell my business?
There are many aspects involved when considering the best time to sell a business, including but not limited to, the valuation of the company, it's financial standing, earnings history, projected growth, and current or changing market conditions.
Generally, the best opportunity to sell is when the business shows favourable sales and profits, and a positive growth trajectory, along with successful past results.
When should I tell my employees I plan to sell my business?
It is ideal to wait until the sale is completed or nearly finalized before disclosing information to staff. Disclosing the sale too early can potentially jeopardize the transaction in progress. Finding the right time to explain the sale can help minimize staff fears and turnover, as well as ensure a smooth exit and transfer of ownership.
How long does it take to sell a business?
Although the time varies depending on the size and complexity of the business, it generally takes an average time of 6-12 months to sell a business.
Closing deals are what we do best.
Speak to a business acquisition lawyer and schedule a free consultation today.
