What mistakes do first-time business buyers commonly make?

First-time buyers rarely fail on the headline price. They are caught by obligations that follow the business, because a seller’s unpaid amounts and registered claims do not vanish when ownership changes. The mistakes below are the ones official sources let you test directly, so a seller’s assurance can be replaced with a document before money moves.

Taking the seller’s word on tax and workers’ compensation

British Columbia’s Ministry of Finance advises a purchaser to hold a PST clearance certificate before buying a business, confirming the seller has paid what was owing. Alberta’s Workers’ Compensation Board says a buyer has a responsibility to get a clearance. Ask which clearances your province expects and request them early, as set out in our page on how a delayed clearance certificate affects closing.

Skipping the lien search

In British Columbia a lien is a notice of a legal claim registered against personal property as security for a debt or loan, and the personal property registry can be searched. Alberta runs a similar registry where a registration can be found. A search before closing shows what is registered against the equipment and inventory you are buying. Our guide to checking for liens on business assets explains how.

Agreeing a price split without checking the tax effect

How the price is divided between goodwill, equipment and inventory can change the sales tax owing. British Columbia’s guidance says the goodwill value that buyer and seller agree must be reasonable, and they cannot raise goodwill and push the price of taxable assets below fair market value to avoid PST. Ask your accountant what your province requires before the split goes into the agreement.

Assuming the company’s status is current

Corporations Canada says every federal corporation must file an annual return each year, and that filing avoids potential administrative dissolution. If you are buying the shares, you are buying the corporation itself, so confirm that it still exists in good order. We explain the steps in how to check a corporation’s good standing.