Buying and Financing a Business in Canada - Pro’s and Con’s and Advice!

Posted by admin on February 8th, 2010 filed in Business

Any Canadian entrepreneur who is excited about buying a business understands the both the great potential rewards, as well as the inherent risks if a proper business analysis is not completed.

Naturally any business has to be investigated thoroughly, and the potential purchaser should make a strong effort to understand the future prospects and income and cash flow of the business. Most business people accept the fact that it's inherently less risky to purchase an existing business than to start one from scratch. The pros and benefits are intuitively obvious: an existing business has a business model and (hopefully) a proper structure in place. Whether the firm is regressing, staying 'flat 'or growing, there are already existing customers!

Great care must be taken to ensure that the owners understand the true cash flow of the business being acquired. At this point in the decision cycle the business owner should be relying on three different parties to get solid advice, opinions, and research into the subject company he or she is looking to acquire. Those three parties are:

Lawyer
Accountant
Third party trusted advisor/intermediary

Solid advice from these three parties allows a prospective purchaser to ensure that the weight of evidence strongly sits on either the buy or don't buy decision.

Many business owners and entrepreneurs choose at a certain point to enter into a different industry than that in which they have their business life experience. While there are many that can achieve success in a new industry clearly that decision should be taken carefully. It is at this point that the entrepreneur clearly needs to determine whether he or she has a strong comfort level with the business model, the industry the company is in, how the business generates cash and profits, and the ability to keep customers and, moreso, attract new customers.

If a business purchaser is keeping an incumbent management team or employee team in place there clearly has to be a strong sense that the new owner and the existing management team and personnel can work together effectively. That sort of due diligence and investigation is often much more difficult to address than the somewhat more straightforward and unemotional analysis of the firms accounting records and financial statements.

Every business purchaser makes an investment of time and money into a new business. Here is where the concept of ROI - return on investment plays a large role. That is to say, will the owner be happy and content with the new business challenge, and has he or she the ability to properly recover and grow the investment vis a vis what they are putting gin .

In a perfect world it would be great to acquire a great business without taking on new debt " that typically is not the case. Business owners should ensure they have the financing in place to make a proper acquisition.

Planning is everything, and it is strongly recommended that the business purchaser spend a decent amount of time on a business plan to track the future success of the business. Naturally this document will be of great interest to lenders also!

In summary, the risks and rewards of buying a business are somewhat evenly balance at the outset. Purchasors have a number of methods to ensure that the chances of success favor their potential investment. Properly planning, solid advice from trusted advisors and proper financing are a great way to start off any new venture. Stan Prokop is the founder of 7 Park Avenue Financial. See www.7parkavenuefinancial.com The company originates business financing for Canadian companies and is a specialist in working capital and asset based financing of all types . For more information or contact details please see : http://www.7parkavenuefinancial.com/Home_page.html