What are the main things to weigh when buying an existing business instead of starting one?

Buying an existing business and starting a new one carry different tradeoffs, and Deavo does not say which is better. BDC, the federal development bank, says buying a business can give you revenue, customers and proven operations from day one. The same BDC guidance points to costs on the other side of the ledger. This page sets out those points so you can weigh them against your own plans.

What you may inherit: liability

BDC says acquiring an existing business can come with liability issues that have the potential to cause serious losses. It suggests protecting yourself with an indemnity agreement from the seller, promising to be responsible for any unforeseen liability that could arise for a period after the sale. Whether such a clause fits your deal, and how it is drafted, is a question for your lawyer.

What you may inherit: habits and relationships

BDC puts it plainly: when buying an established business, you are also buying the previous owner’s way of doing things. It says to think carefully about how you introduce yourself to customers and suppliers, and to make a special effort to protect your relationship with key clients. Ask the seller who the key customers and suppliers are and how they would hear about the change.

What to verify before you decide

BDC’s due-diligence guidance asks whether the figures match the information from the owner, and whether tax returns match the financial statements. It also says to make sure key contracts, such as leases, regulatory agreements and customer contracts, can be assigned to you if necessary. These checks take time and professional fees, so count them in your comparison.

The paperwork that does not carry over

Some registrations are tied to the owner. The Canada Revenue Agency says a sole proprietorship is legally and directly tied to one specific individual, and that a new owner can’t continue using the old business number. See How do I register a business after buying it?.