On this page
- What are the steps to buying a business in Canada?
- How do buyers value a business in Canada?
- The eight things buyers check
- Why do buyers prefer asset purchases?
- What causes a buyer to lower the price after the letter of intent?
- If you are selling: use the buyer's checklist first
- Frequently asked questions
What are the steps to buying a business in Canada?
Most buyers define what they want, find opportunities through brokers, advisors, listings or direct outreach, sign an NDA to review the details, make a non-binding offer, sign a letter of intent, arrange financing, complete due diligence, sign the purchase agreement and close. The process usually takes six to twelve months.
- Set your criteria: industry, size, location, and the role you want to play.
- Find opportunities: brokers, M&A advisors, listing sites, and direct approaches to owners.
- Sign an NDA and review the confidential information memorandum.
- Value the business on normalized earnings, not the asking price.
- Submit an Expression of Interest, then negotiate a letter of intent.
- Arrange financing. Lenders size loans to what the earnings can repay.
- Complete due diligence on financials, tax, legal, customers and operations.
- Sign the purchase agreement and close, with a transition plan agreed.
How do buyers value a business in Canada?
Most buyers value a Canadian mid-market business as a multiple of normalized EBITDA, meaning earnings adjusted for one-time costs and a market salary for the owner. Industry sets the starting range, often 2x to 6x. The traits below decide where a specific business lands in that range.
For most buyers using bank financing, the lender also sets a ceiling. As a rough guide, borrowing $1 million at about 9% over six years costs around $216,000 a year, and the business's earnings need to cover that with room to spare.
Then there is the gap between the price and what the seller receives. Debt is repaid, working capital is adjusted and deal costs come off. A buyer who understands that bridge negotiates differently, and so does a prepared seller.
The eight things buyers check
1. Are the earnings real?
A quality of earnings review. Reported revenue is matched to actual bank deposits, and every add-back is traced to a document.
Three to five years of CPA-reviewed statements, personal expenses removed, and a file behind every adjustment. An add-back without evidence usually doesn't survive. Some sellers run their own quality of earnings review before going to market.
2. How concentrated are the customers?
Look at revenue by customer. When the top three customers make up more than 25% of revenue, buyers usually push the multiple toward the bottom of the range. They also check whether those accounts are under contract and who holds the relationship.
Track revenue by customer by month, put key accounts under written contracts, and move relationships from you to your team. Rising concentration over several years is a red flag on its own.
3. How dependable is the revenue?
Separate revenue that must continue (contracts, subscriptions, service agreements) from revenue that has simply continued (repeat customers with no commitment) and one-time project work.
Convert repeat work into agreements where you can. Contracted recurring revenue is one of the strongest drivers of a higher multiple.
4. Does the business run without the owner?
Ask whether the business could run for 90 days without you, with no loss of revenue and no decisions backing up. When the owner makes every decision, holds the key relationships and works 60 or more hours a week in operations, buyers typically cut the multiple by 0.5x to 1.5x EBITDA and ask the owner to stay two to three years.
Document systems, delegate key relationships and build a management team. This takes 18 to 36 months, so start early.
5. Is there a team behind the owner?
Look for a second in command and single points of failure. Buyers commonly discount businesses with high key-person risk by 20% to 30%.
Name and develop key people, and put a retention or phantom equity plan in place 18 to 24 months before the sale. These often set aside 5% to 15% of company value for three to five key employees, with vesting. A strong team that leaves at closing is not a strong team.
6. Will the contracts survive a sale?
Review customer, supplier and lease agreements for change-of-control or assignment clauses, which can let the other party walk away after a sale.
List every material contract and flag any that need consent. Leases in particular often need landlord approval.
7. Is there enough working capital?
Set a working capital peg, the normal level of receivables plus inventory, less payables, that must be in the business at closing. If the actual figure comes in lower, the price drops dollar for dollar.
Keep a 12-month monthly working capital schedule, track receivables aging, and keep construction holdbacks separate from regular receivables. Agree the method in the letter of intent, not in week nine of due diligence.
8. Are tax and legal records clean?
Check tax filings, CRA correspondence, minute books, shareholder loans and share ownership history.
Bring filings current, repay shareholder loans, update minute books, and confirm your shares qualify for the Lifetime Capital Gains Exemption. That check needs to happen 24 months before the sale, not during it.
Also on the list: deferred spending. Buyers look at the age of equipment, vehicles and systems. Maintenance or replacement that has been put off shows up as a price reduction, because the buyer will have to pay for it.
Why do buyers prefer asset purchases?
In an asset purchase, buyers choose which assets and liabilities to take and get higher tax deductions on what they buy. Sellers usually prefer share sales, which can qualify for the Lifetime Capital Gains Exemption. When a buyer insists on assets, sellers often negotiate a price premium of 10% to 15%.
What causes a buyer to lower the price after the letter of intent?
A price cut during exclusivity, called a re-trade, is most often caused by the business's performance slipping during the process, add-backs that don't survive review, working capital that wasn't agreed up front, undisclosed problems, or customer concentration worse than represented.
Sellers who disclose the difficult items early, agree the working capital method in the letter of intent and keep exclusivity short give buyers fewer reasons to re-trade.
If you are selling: use the buyer's checklist first
Every item above is fixable with enough runway. Found three years before a sale, a weak spot is a line in your action plan. Found three months before, it becomes a price reduction.
Take the free Sellability Score to see how your business rates on the factors buyers care about. It takes about 13 minutes. For the full process, see How to Sell a Business in Canada: The 12-Month Playbook.
Frequently asked questions
What do buyers look for when buying a business?
Buyers look for earnings that are real and will continue after the owner leaves. They check clean financials, customer concentration, recurring revenue, owner dependence, management depth, contract transferability, working capital, and tax and legal records.
How long does it take to buy a business in Canada?
Buying a business in Canada usually takes six to twelve months from first contact to closing. Due diligence and financing are often the longest steps. Well-prepared sellers with organized records shorten the process.
How do you value a business you want to buy?
Most buyers value a Canadian mid-market business as a multiple of normalized EBITDA. Industry sets the starting range, often 2x to 6x. Customer concentration, recurring revenue, owner dependence and management depth move the multiple up or down within that range.
What is included in due diligence when buying a business?
Due diligence covers financials, tax, legal and corporate records, customer and supplier contracts, employees, operations and equipment. Buyers often commission a quality of earnings review that matches revenue to bank deposits and tests every add-back.
What makes a business hard to sell?
The most common problems are heavy dependence on the owner, a few customers making up most of the revenue, poor financial records, project-based revenue with no contracts, and tax structure issues that block the Lifetime Capital Gains Exemption. Most can be fixed with 18 to 36 months of preparation.
