What you need to know when buying a business | BDC.ca
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What you need to know when buying a business

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There are many considerations when you’re buying a business or looking to become the partner of a current owner.

You will probably want to start your search in a sector where you have some expertise. You can contact business associations in the field and ask if they know of any companies that are up for sale or looking for a partner.

After adding in geographical, financial and other criteria, you should be able to narrow a large sector down to a few target businesses in your area.

How to approach your target businesses

The next task is to approach these businesses and ask if they are considering selling or taking on a partner.

Be diplomatic, but honest. Your position should be that you want to operate a business in this field and are looking for an opportunity that would provide some challenges, financial returns and be a good personal fit.

Sell yourself to potential partners

Be clear about your desires and goals. Your straightforward approach will speak volumes to potential partners about your style. In essence, you are selling yourself, and the secret of any sales campaign is to make the prospective customer want to do business with you.

Generally, entrepreneurs want to take on partners or sell their business because they:

  • want to retire or slow down
  • have no one in their family who can take over the reins
  • need an interim manager while their family successors learn the business

One word of warning: Some business owners want to sell because their businesses are failing and they have no desire to fix them; or they need quick cash but want to retain absolute control. These are situations to avoid.

What your bankers will want to know

Once you’ve made a deal to buy a business, you may need a business loan to finance the transaction. Here are some questions bankers will have for you.

  • Why is the owner selling the business?
  • How was the selling price established? In other words, what does the amount include? (Equipment, working capital, inventory, good will etc.)
  • What is your investment in the project? Any financial institution will require you to invest in your own project to show your commitment.
  • Have you ever worked in the company being acquired? If so, in what position?
  • Do you have access to the financial statements of the company being acquired? How profitable is it?
  • What is your experience in this industry?
  • Do you have a business plan?

A business plan will help

If you haven’t worked in the company being acquired, you should prepare a business plan outlining how you are going to operate the business.

Even if the company has been extremely profitable under the previous management, your banker will want assurances it will perform just as well under you.

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