How to Buy a Business in Ontario: A Step-by-Step Guide for GTA & Canadian Investors

Why is Buying a Business in Ontario a Good Idea?

Home to the Greater Toronto Area (GTA), Ontario is a prime location for business owners looking to sell their companies. The GTA alone is home to over 900,000 small businesses, most of which are willing to sell. In addition to a vast marketplace of potential business sales, investors benefit from:

• Getting an established cash flow and customer base.
• Having access to financing with ease.
• Taking advantage of existing supplier relationships.
• Having skilled employees already in place.

How to Buy a Business in Ontario: Step-by-Step Guide

Step 1: Determine Your Buying Criteria

The first step to taking control of your business sales journey is to determine your buying criteria. This helps both you and your business broker understand what kind of business for sale in Ontario you’re looking for. Some of the most important factors to consider are:

• Industry – do you prefer to be in a particular industry, or have any experience in one?
• Price range – how much are you considering spending, and how much do you have to put down as a down payment?
• Involvement – do you plan to be actively involved in the day-to-day operations of the business you intend to purchase?
• Location – what area are you considering? Are you exclusively interested in the GTA, or are you open to opportunities elsewhere in Ontario?

Step 2: Get Pre-Approved for Financing

Now that you have an idea of what you’re looking for, it’s time to get pre-approved for financing. Understanding how much you can spend is an important step in buying a business in Ontario, as having an idea of your price range will significantly improve your chances of securing a deal.

Some of the most popular financing options in Ontario are:

• Bank financing
• BDC – Business Development Bank of Canada
• Seller financing (VTB - Vendor Take-Back Mortgage)
• CSBFP – Canada Small Business Financing Program (often confused with the US SBA loan)

Step 3: Get Help From a Professional Business Broker in Ontario

Working with a professional business broker in Ontario is essential if you want to get help finding businesses for sale. They provide guidance in determining the value of a business, reviewing disclosures, and much more. North American Business Brokers specializes in connecting GTA and Canada-based investors with businesses for sale in the region. We can help you find a wide variety of profitable businesses for sale in Ontario.

Step 4: Review Financials and Sign an NDA

Once you work with a business broker, you’ll get access to a list of businesses for sale in Ontario, along with a Non-Disclosure Agreement (NDA). The NDA allows you to securely review the financials of a business, such as:

• Profit & Loss (P&L) Statements
• Tax Returns
• Lease agreements
• Inventory, Equipment, and More

After reviewing the financials of the business you’re interested in, you and your broker should establish the value of the company using either the SDE multiple, EBITDA multiple, or another method of business valuation.

Step 5: Submit a Letter of Intent (LOI)

If you’re interested in buying the business, you can submit a draft Letter of Intent (LOI). The LOI is a non-binding document that outlines the purchase price of the business and other important details concerning the sale. It serves as a starting point for negotiations between you and the seller.

Step 6: Conduct Due Diligence

It’s finally time to conduct due diligence, which is one of the most important steps in buying a business in Ontario. In order to get the correct information about the business you intend to purchase, you should hire an accountant and a lawyer to help you with the process. During the due diligence process, you’ll want to confirm the following:

• Accuracy of financial statements
• Tax compliance
• Legal liabilities and obligations
• Licensing, permits, zoning, and regulations
• Customer and employee contracts

Step 7: Finalize the Deal Structure

Before moving on to the next step, you should also consider the structure of the purchase. The two most common ways of buying a business are purchasing assets and buying shares.

Once you’ve decided on the structure of the purchase, it’s time to finalize the deal. You’ll need to work with a lawyer to sign the Asset Purchase Agreement (APA) or the Share Purchase Agreement (SPA), depending on the structure of the purchase. At the closing of the deal, you’ll also need to bring your lawyer, the seller’s lawyer, and your lender (if you’ve financed the purchase).

Step 8: The Transition Process

The transition process typically lasts between 30 and 90 days, and its main purpose is to help you get accustomed to running the new business. It’s common for the seller of the business to assist you during this process, helping you onboard employees and other suppliers.

Common Mistakes to Avoid When Buying a Business in Ontario

Mistakes should be avoided at all costs when buying a business in Ontario. For example, many investors choose to skip the due diligence process in order to save money. However, this can be a huge mistake, as one false move can cost you hundreds of thousands of dollars. Some other common mistakes to avoid are:

• Paying too much for a business (not using proper valuation methods).
• Failing to account for the expenses associated with transitioning into the new business.
• Incurring unexpected liabilities for leases.
• Taking on employees without knowing how to manage or utilize them effectively.