What should I check before buying a business?

Due diligence is the process of confirming that a business is what the seller says it is before money changes hands. It typically runs several weeks and touches financial, legal, operational, and human-resources questions at once, so most buyers work through it with an accountant and a lawyer rather than alone.

Financial records and tax standing

Request at least two to three years of financial statements, tax returns, and recent bank statements, and compare them against each other for consistency. Confirm the business’s standing with the Canada Revenue Agency, since unpaid corporate tax, GST/HST, or payroll remittances can attach to the business and become the buyer’s problem after closing.

Legal and corporate status

Check the corporation’s standing, its constating documents, and whether any liens, executions, or security interests are registered against the business or its assets. A lien search and a corporate search are inexpensive relative to the risk of buying a business that already has a creditor with a claim on its equipment or receivables.

Contracts, leases, and key relationships

Review the lease, major supplier agreements, and customer contracts for assignment clauses, termination rights, and any consent the landlord or a counterparty must give before a sale can close. A business that looks stable on paper can lose its most important customer or its location if a contract doesn’t transfer the way the seller assumes it will.

Employees, licences, and operational exposure

• Confirm what happens to existing employees under an asset sale versus a share sale, including any obligations that follow a successor employer.
• Check that every licence or permit the business needs to operate is current and actually transferable to a new owner.
• Ask about pending or threatened lawsuits, workers' compensation standing, and any environmental exposure tied to the premises.