Financial Considerations When Purchasing a Business in Canada

What financial considerations must you take when deciding whether or not to purchase a business in Canada?

  1. How will the purchase price be determined and allocated (i.e., will it be based on multiple of earnings, revenue or book value, will goodwill be considered, etc.)?
  2. How has the transaction been structured, is it for cash, shares, property or some other form of consideration or a combination thereof? Have you considered all potential closing costs and expenses when calculating the purchase price and required capital needed to operate the business? What is the adjusted cost base of the shares (if a share transaction)?
  3. Have you been provided with financial statements (audited or pro-forma) for the business? Try and obtain financial statements for the past three fiscal years if available.
  4. What is the "quality" of the financial statements/other information that you have received? Is the information current or out-of-date? Who prepared the information - was it prepared by a professional accountant in Canada or was it prepared internally? Have the statements been audited? Have the statements been prepared in accordance with Canadian GAAP?
  5. Have you had the financial information reviewed by your financial consultant and accountant? Have you developed detailed and quantified projections based on reasonable assumptions and expectations? Ensure all forecasts and projections are normalized and adjusted to realistic market-based values, and that all facts, figures and numbers used are reasonable.
  6. What do the projected calculations and forecasts for performance indicate about the first year, post-closing?
  7. What financial information do you still require?

Brooks Barristers & Solicitors is a boutique business law firm located in Toronto, Ontario specializing in serving the needs of entrepreneurs, privately-owned Canadian businesses and their principals.

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