To be a savvy buyer of a small business in Canada, you need to know how to interact with a business broker and also have reasonable expectations about the information disclosure process. Here is a little summary of the typical process of information dissemination regarding a business for sale listing.
The business for sale ad
A business broker will usually advertise their business listings via advertisements. These ads may appear online, in print or a variety of other places. The key point is that the ad will be very brief. It will contain a general description of the operation, some high level idea of the size of the company as well as profitability (maybe) and may not even mention the city it is in. Most businesses for sale in Canada are marketed in confidential sale so the name of the company will probably not be in the ad. The whole purpose of these ads is to stimulate buyer interest to pick up the phone and to call the business brokerage.
The call with the business broker
After you see the ad you may be enticed to call in to the brokerage to talk further about the company. The business broker may tell you some high level information about the company but at this point they will ask you a few questions too. A business brokerage needs to qualify all buyers on behalf of their clients. The first level of qualification is accomplished by asking you some general questions about how much money you have to invest in a purchase, you background and what you are doing now. The business intermediary will try to screen out and non-qualified buyers and invite only the qualified ones to sign the confidentiality agreement to get them the next step, which is the business summary.
Business summary provided via the business brokerage
A business for sale represented by a brokerage will usually have a summary or information memorandum included. If the broker determines that the buyer is qualified he or she may run the name of the buyer by the seller. If they give the OK and the buyer signs the NDA then the summary is an even deeper dive into the business. Included may be the business name, summary of financial statements, summary of operations and a brief history of the company. It should be a “medium” dive into the business and is designed to flesh out the opportunity for the investor before moving to the next step, which is a meeting with the seller.
Meeting with the seller of the business
The meeting between the seller and the possible buyer of the business is an important step in the process. Theoretically, at this point the buyer has been screened by a business broker and has expressed a sincere interest in the listing. The buyer may ask some more detailed questions at the meeting but the seller should avoid talking about price flexibility, potential deal terms and so on. The meeting is designed to see if the buyer will fit with the business and if there is meeting of the minds between the two parties.
Due diligence
If the buyer wishes to move forward, normally the next step is a conditional offer or a letter of intent. After a conditional agreement has been reached due diligence begins which is a thorough investigation of the business by the buyer and their professional advisors. It is a very detailed process and a business seller should also involve their lawyers and accountants.
If you’re a seller, there are also some great business seller resources on the internet that are helpful and talk to your professionals. For buyers, also talk to your professionals or your local business brokerage.