Can we provide some different ideas on how to purchase a business in Canada? That's what we were asked recently in an interview we gave to one of Canada's leading sites for entrepreneurial business success. We think we can, so here's a recap of that interview. Let's dig in.!br>
1) What are different ways to purchase a business?
There are numerous ways to purchase a business from a financial perspective. They include a vendor take back from the owner, the Canadian Small business government loan ( for deals up to 350k) , bank financing for companies that have assets and cash flow, asset based lines of credit that monetize the assets in the business you are purchasing, etc. The type of financing you use to put the deal together is based on the quality of the company you are buying, the personal and business credit of yourself, the size of the deal, and the lenders overall perception of risk.
2) How can you evaluate if a business is successful?
There are really two things you have to focus on when evaluating a businesses potential success. One is of course the actual financials, the other is simply the insights you need to obtain into the business outside the numbers.
Although any financial analysis for business purchase is a bit of both an art and science it's probably a bit easier than the non financial person might think. And if you are a non financial type you can of course rely on a Canadian business financing advisor, your accountant, lawyer, etc.
A great way to size up the financials of the business is to simply use what we call ' trend analysis '. Take some key metrics from the numbers and ' spread' them out. They might include sales, changes in A/R and inventory levels, fixed asset growth or non growth, and levels of external debt and payables.
Some of those non financial issues might include analysis of profit, (or lack thereof!), any issues with lenders and suppliers, the management that's in place, and the way the company markets and sells its products.
3) What are the pros and cons of buying a business?
Companies that have all sorts of problems can often be purchase for a good price. Naturally, similar to the stock market there is a reason the price for the company (or that stock) is so low. Typically they are perhaps losing money or not generating a lot of profit, or have some real challenges in generating revenue.
4) What are the different types of businesses that you can purchase?
In many ways the amount of equity or your own capital will drive a final decision to purchase a business. That relates primarily to the size of the venture also. In fact the business acquisition industry has some rules of thumb around what you can in fact afford. These typically are called ' multiples', and are based around financial metrics such as sales, or book value of assets, or cash flow, or ... combinations of several of those. Quick example to explain our point? In older times you could often purchase a manufacturing business for a multiple of 50% of sales (not exactly a ' multiple' but you get out point! So a mfg. business with sales of 2 Million dollars could be typically purchase for 1 Million dollars - assuming all the planets align. (Sometimes they don't)
5) What's the first thing you should do after purchasing a business?
There's a great quote by Rod Laver, the tennis player , who once said ' YOU'RE MOST VULNERABLE WHEN YOU'RE AHEAD'! So after you have in fact bought a firm focus on a smooth transition. That might include employee issues (quite often they didn't know the company was being sold), major client perceptions, Supplier relations, and your ability to put in financial controls that allow you to understand what's going on in the business.
Can you purchase a business successfully in Canada? The answer is a resounding YES! If you have the right info, team, and strategy in place. Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your overall business finance needs.
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Stan Prokop - founder of 7 Park Avenue Financial – www.7parkavenuefinancial.com
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 10 years - has completed in excess of 80 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing. Info re: Canadian business financing & contact details :
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