How much cash do I need to buy a business in Canada?

Buyers usually ask this as a percentage question and are told a rule of thumb. The rule of thumb is not what a lender applies. A lender starts from the business’s cash flow, works out how much debt that cash flow can safely service, and the gap between that number and the purchase price is what the buyer has to cover from equity or a vendor take-back.

The costs buyers forget

• Legal and accounting fees for diligence and closing, which are real money on any deal
• Working capital the business needs on day one — payroll, inventory, deposits
• Licence transfers, franchise transfer fees, landlord assignment fees
• GST/HST on an asset sale where the section 167 election is not available
• A reserve for the first slow months, which almost always arrive

Where the rest of the money comes from

Most Canadian acquisitions are funded from three sources rather than one: the buyer’s own cash, a lender advancing against identifiable assets — often supported by the CSBFP or provided by BDC — and a vendor take-back covering the part of the price attributable to goodwill, which conventional lenders finance least willingly.

What to do before making an offer

Model the debt service before you agree a price, not after. A buyer who signs an LOI and then discovers the loan will be smaller than assumed is renegotiating from a weak position — the seller has already been told the deal is done.