Toronto business and franchise lawyer, Sukhi Hansra, of Hansra Law, discusses how to find a business to buy in Toronto or Ontario.
Looking for your next big investment? Or perhaps you want to start fresh on greener pastures with the acquisition of your first business. Look no further. This Legal Guide will walk you through the process of how to find a business to buy in Toronto or Ontario.
1. Canvas Your Network
Most businesses for sale often never hit the market. Instead, they are bought and sold through friends, family and close contacts. Your first step should be canvas your network of contacts (i.e. accountants, lawyers, business brokers, business owners, trade groups and other professionals) to see if you can find one of these direct leads. In this day and age, it is easy to reach out to your network using email or social media and make it known that you are actively seeking to purchase a business.
If you can’t find a direct lead, you can look for a business lawyer or business broker in the industry that may be able to point you in the right direction. Business lawyers and business brokers always have an eye to the market and know where potential opportunities may arise.
2. Check Business Broker Websites
Many business brokers advertise businesses for purchase and sale on their websites. It’s best to first review the prospective broker’s area of expertise. Some business brokers cater to specific industries – so if you are looking to purchase a franchised restaurant you should seek the assistance of a restaurant business broker.
Companies that are listed on a business broker’s website have hired the broker to find a buyer for the business. If you find a business that interests you, you can contact the broker to get more information. If a deal is concluded, the seller of the business will have to pay a broker’s fee to the business broker, which is typically a percentage of the selling price (approximately 5 – 10% of the sale price of the business).
When looking for a business broker, it’s often a good sign for a business broker to have the designation as a Certified Business Intermediary, but many skilled business brokers do not have this certification.
3. Conduct a Passive Search
Another strategy is to contact business broker and request to be included in the broker’s passive search. A passive search is a list of prospective buyers that many business brokers maintain to later connect with suitable sellers. There’s no fee to be included in a passive search list, and the vendor would ultimately pay for the broker’s fee if you end up making a successful business purchase.
If you do not have an exclusive arrangement with a specific business broker, it’s a good idea to register with several business brokers to be included on their lists of potential buyers. Always search for a reputable business broker to increase your opportunity of finding the right opportunity for you.
To participate in a passive search, you will typically be asked to tell the broker about yourself, the type of business you’re looking to purchase (e.g. industry and geographical area), your budget, minimum gross sales, expectations for vendor financing and past business experience. You may also be asked to sign a confidentiality agreement and submit a financial capacity statement to show the broker that you are ready to make the purchase.
4. Conduct an Active Search
An active search is a more involved process where your business broker will seek out potential businesses for sale in a business database to find the best suited match for you. Business databases such as these mostly contain active companies that aren’t publicly listed for sale. The broker will contact these companies and see if the owner is willing to consider selling on your terms. Often times, many business owners will sell their business if offered the right price.
Similar to a passive search, your broker will require a list of information including the type of business, the criteria for your purchase, a financial capacity statement and a confidentiality agreement. If a seller is interested, the broker can arrange to get more detailed information about the business and a valuation. The valuation is typically done at the buyer’s expense. Sometimes the vendor will want to know how the buyer came to a certain valuation, in which case both parties may split the cost of a mutual valuation.
To conduct a passive search, the buyer will typically pay the broker an upfront retainer and a monthly fee for the broker’s search time. If a deal goes through, the buyer will pay the broker’s fee for finding a suitable business to purchase.
Conclusion
Although these are great starting points to consider when looking for a new business to purchase, a good first step would be to speak to someone who has been through it, or someone who has helped others purchase and sell businesses – such as a Business Lawyer or Business Broker.
At Hansra Law, we are always more than happy to connect buyers and sellers with each other, or to suggest a suitable business broker with expertise in your particular industry.
