Buying an Existing Business
What help is available to me?
Assistance with regulations, financial, or human resources issues and one-on-one counselling is available at no cost from the Business Enterprise Centre of Sarnia-Lambton. Contact us by telephone at 519-332-1820 or email Fraser Parry or Matthew Slotwinski They would be happy to speak with you.
What am I paying for when I buy an existing company?
You can buy the assets (including the name) of a proprietorship or a partnership, but not the proprietorship or partnership itself. Instead, a new 'entity' will be created by you. If you are buying a corporation, be sure you know whether you are buying the shares or simply the assets of the corporation. When you buy an existing business, the purchase price will likely be determined by evaluating two key factors:
- The assets and the liabilities of the business; and
- The present value to the purchaser of the historical earnings stream created by the company.
It is critical that what is to be included in or excluded from the transaction be clearly stated in writing.
What is "Goodwill?"
"Goodwill" is an accounting term applied to the paid difference between a company's book value and purchase price.
What documentation should I request from the vendor of an existing business?
As you will be paying for the assets and liabilities of the existing company as well as its historical earning stream, you should request complete financial statements (Profit and Loss Statements and Balance Sheets) for a minimum of the past three years-and preferably five years. Carefully read the accountant's "Notes to the Financial Statements," as these will provide insight into the methods used for calculation of amortization (depreciation), and will describe unusual circumstances that may have affected the business.
What stops CRA from coming after me for the previous owner's tax debts?
A Certificate of Clearance is available for a variety of taxation liability issues from both Canada Revenue Agency and the Ministry of Finance. The requirement for the vendor to obtain and provide the purchaser with appropriate Certificates of Clearance should be a "must-see" provision in any purchase of a corporation.