Buying A Business In Canada And How To Eliminate 4 Risk Elements

Assessing Patient Health ( When You’ re Buying A Business In Canada )

OVERVIEW – Information on buying a business in Canada . How to analyze the risk that comes with any company purchase




Buying a business in Canada involves (some) risk, so is there a HOW TO when it comes to eliminating some of that risk? We think there is... so let's dig in.

Have we got a story for you? Yesterday, scouts honor, we got a call from a client of ours 15 years ago. He wanted some advice on how to buy a business and whats involved... including the proverbial question “how much money do I have to come up with in addition to the financing?

While we are still getting over a client remembering our services for 15 years it got us to thinking on ways to provide him with solid clarity around the risk inherent in any business purchase. We think there are probably 4 key areas you have to focus on when looking for financing on your business buy.

In effect we’re talking abut the health of the patient. So when you understand how healthy or unhealthy that patient is you can address the issues of profitability and financing that are key to overall success in any venture. Interpreting that overall ' business health' is critical.

To asses risk you really have to put yourself in the exact same position as those smart Bay Street guys. They also look at 4 key areas:

Debt - Present and future

Liquidity and Cash Flow

Profit

Asset turnover


While the Bay street gang

focuses on words such as ' financial ratios' we've always preferred to call them ' relationships'. And once you understand those relationships you're in a position to make an informed business decision. In many cases you can draw on your own past business experience to wade through and understand some of these finance and number relationships.

It's also important to look at our 4 criteria over time, not just as the moment, as a business changes its balance sheet and income statement literally every minute as you sell and collect , utilize assets, etc.

Debt load is key to any business purchase and financing. Existing debt must be repaid or refinanced, and typically any business you buy should have no more than 2 or 3 times debt versus your owner equity. That number varies by type of industry and the ability of any company to generate cash flow. Ultimately you wish to ensure that the cash you can generate can repay fixed or operating debt.

We haven’t met anyone yet that disagrees with ' CASH IS KING '

so focus a lot of time on short term current assets - and understand how inventories and receivables turnover and how they can be monetized for more liquidity .

Every entrepreneur intuitively focuses on sales growth - a company is cheap when it’s for sale if it’s in a death spiral. So understanding sales growth potential, client payment terms, gross margins and net income potential is key.

We're big on item # 4 in our patient health scenario - Asset turnover. Just your ability to turn existing assets more efficiently - i.e. collect A/R faster, generate more inventory turns, dispose of unused assets, etc can help fix your ship without any external help and financing that is unneeded.

Once you’ve assessed the health of any company you wish to purchase it can be financed in several manners. They might include:

Government Business Loans (THE SBL)
Commercial bank facilities - term and operating
Non bank asset based lines of credit
Bridge loans
Vendor take back options

Looking for a ' how to ' when it comes to buying a business and financing it in Canada. Seek out and speak to a trusted, credible and experienced Canadian business financing advisor with a track record of success who can assist you with your business purchase needs, and a lot of solid advice along the way!



Stan Prokop - founder of 7 Park Avenue Financial

http://www.7parkavenuefinancial.com


Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 10 years - has completed in excess of 80 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing.

Info re: Canadian business financing & contact details :



7 Park Avenue Financial = Business Purchase Financing Expertise


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7 Park Avenue Financial

South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Phone = 905 829 2653
Fax = 905 829 2653
Email = sprokop@7parkavenuefinancial.com





















































Stan Prokop