Financing and Tax Considerations when Purchasing a Business in Canada

Brooks Barristers and Solicitors

Deciding whether to start or purchase a business in Canada (and in which industry) is likely one of the most important decisions you will ever make. Below is a list of questions to ask and issues to consider when going through this decision-making process. Most importantly, ensure that you obtain as much information as possible with respect to the business and its corresponding industry and consider all possible alternatives; only then can a truly informed decision be made.

  1. How are you financing the acquisition (e.g., personal, bank loan from a Canadian financial institution, private sources)? Have you finalized arrangements to have financing in place by closing?
  2. What is the suitable level of debt to equity in the industry for this business (will your ratio be within industry standards)? How does this business compare with the industry standard?
  3. In your projections/forecasts, are there any periods when cash flow will be tight and supplementary financing may be required? Is there a margin in the financing you have available to cover fixed and other costs in case of a downturn?
  4. Do you have the finances required to maintain your lifestyle without having to divert funds away from the business?
  5. Are you, your family and your other businesses able to cope and withstand a significant economic loss as a result of this transaction?
  6. What tax issues should be considered with respect to this business and structuring the transaction?

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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