Mature businessman inspecting factory warehouse with younger workman
Small business

For sale: 4 key things to consider before buying a business

Baby boomer business owners are looking towards retirement. Before you make an offer, know what to look out for.

Mature businessman inspecting factory warehouse with younger workmanA meeting with the owner will help you gain a deeper understanding of the business, including its history, revenue, costs and employees (Shutterstock/SeventyFour)

As baby boomers continue to map out their retirement plans, the business landscape in Canada is poised for a dramatic shift.

According to a November 2018 survey from the Canadian Federation of Independent Business, 72 per cent of business owners intend to exit their businesses within the next decade. To put this into perspective, that means “$1.5 trillion of business assets could be transferred to a new generation of business owners over the next decade, up 50 per cent from our last estimate in 2012,” according to the report.

That same survey revealed retirement was the main reason—81 per cent—for owners exiting their businesses.

If you’re planning to be amongst that next generation of business owners, there are a few important things to consider before you make an offer.


“The first question buyers should ask themselves is what they want out of this business long term,” says Steven Beal, CPA, CGA, and principal of Beal Business Brokers & Advisors. “Are you happy with a small business that will pay a good salary, and have some perks and benefits? Or are you looking for something you can make into the next business empire?”

It’s also a question of knowing the risks, Beal adds. “How comfortable are you with making your own decisions and accepting the consequences?” he asks. “How comfortable are you with the fact that you might have to go without a paycheque for the first six months—or longer?”


Prior to purchase, there are several areas that need to be evaluated, including whether the business has a good working relationship with its suppliers and bank; if the products and services are still generating revenue; the existing customer base of the company, and so on. Aside from these, consider if you have the know-how to run that business.

“The businesses that we have the hardest time selling are the ones where the owner has a specific skill set,” says Beal. “So from the buyer’s point of view, you want to know what makes the business tick. What are the key success factors of this business, and do I have that or does the business come with it?”

Buying a small business comes with different risks, including the personal goodwill of the owner who is selling or retiring, says Howard Johnson, managing director at Duff & Phelps in Toronto, and author of several books, including Business Valuation and Shareholder Value: Measurement, Creation, Realization.

“That individual may have certain customer relationships or business know-how or other knowledge or connections that have helped the business to generate income that cannot be easily replaced once that retiring seller leaves the business,” he says.


If you’re ready to make your vision a reality, a business broker can help arrange a meeting with the owner. This will help you gain an even deeper understanding of the business, including its history, revenue, costs and employees. 

Because the owner is typically retiring, Beal suggests asking where they would take the business if they were 20 years younger.

“That allows you to see the opportunities that the current owner sees out there, but hasn’t taken advantage of,” adds Beal.


The general principle is to focus on cash flow as opposed to accounting earnings, or net income. 

“One of the common errors people make when valuing businesses is to focus on EBITDA [earnings before interest, tax, depreciation and amortization],” Johnson says. “While a very popular metric, it does not account for important elements that influence shareholder value—such as capital spending and taxation.”

The terms of the deal are just as important as the price, he adds. With a small business, focus on structuring the transaction to facilitate the transfer of knowledge and relationships. 

“An issue that a lot of small business owners have is that they believe that their business is worth a lot more than it really is,” he says. “Some of that valuation gap can be bridged through effective deal structuring.”

That includes a combination of things such as contingency payments, where the specifics of the sale—such as the full sales price or the number of fixed payments to complete the sale—depend upon future events.


Learn the top tips for a smooth transition when replacing an organization’s top dog. Or read more about strategic planning for CEO and executive succession to ensure your company thrives in today’s changing landscape.