Buying a sporting goods store in Canada

Someone evaluating a sporting goods store is judging whether it will keep working without the person who built it. The shelves and fixtures are the visible part. The harder questions are whether the two halves of the year support each other, whether the service department has anyone behind the owner, and whether the accounts with teams, schools and leagues will renew for a stranger. This guide sets out what separates a sound store from a fragile one, what a seller may not mention and what you must qualify for yourself. It builds on buying a retail business in Canada, which covers the questions common to all retail.

A sound store next to a fragile one

A sound store spreads its earnings across the calendar. Winter sport carries the cold months, summer sport the warm ones, and neither has to cover a shortfall in the other. Its service department has more than one person who can tune, fit and repair, and its customers are numerous enough that no single team or school leaving would sink the year. A fragile store can look identical on a good day. It earns most of its profit in one season, relies on one technician who is also the owner, and holds its largest accounts through a personal friendship. When you compare two stores, compare the shape of the year and the number of people behind each relationship, not the sales total.

What a seller may not volunteer

Much of this does not appear in the financial statements, so it has to be asked for.

• Which team, school and league accounts renewed last season, which did not, and who in the store actually deals with each one
• How much of the tuning, fitting and repair the owner performs personally, rather than the technicians
• Whether any stock is under a recall; the Canada Consumer Product Safety Act prohibits advertising or selling a consumer product the seller knows is the subject of a recall order, or of a voluntary recall in Canada because it is a danger to human health or safety
• How much of the sales volume depends on advertised reductions, and what the “regular” prices in those advertisements were based on
• Whether any vendor has said anything about the lineup, dealer terms or a territory arrangement continuing for a new owner

What you must qualify for yourself

Several things a store depends on may not pass to you by signing the purchase agreement. Brand and vendor arrangements are the clearest. Whether a vendor will deal with you on the same terms, or at all, is a question to put to each vendor in writing, because the seller cannot answer for them. The lease is the second: assignment depends on the lease and on provincial law, not on the purchase agreement alone, as our answer on whether a landlord can refuse to assign a lease explains. If the store sells any category that carries its own federal or provincial licensing or storage rules, ask the seller which categories are involved and confirm with the relevant authority whether any licence continues for you.

The technicians come with the store, and so does their service record

Buying the assets or buying the shares changes what you inherit, and our comparison of an asset sale versus a share sale sets out the trade-offs. Either way, check how much depends on the technicians. If you hire the seller’s employees in an asset purchase, Ontario’s guide to the Employment Standards Act says they get credit for their past employment for certain entitlements, unless you hire them more than 13 weeks after their last day with the seller or the day of the sale, whichever is earlier. British Columbia’s Act treats employment as continuous and uninterrupted on the disposition of all or part of a business, and its interpretive guide says that if the seller has not terminated an employee before the sale, the purchaser is responsible for outstanding wages. Ask for each technician’s start date and for what they have been told about the sale. Our answer on whether a buyer inherits years of service goes further.

Expect questions about how the assets are taxed

How the price is divided matters because different assets are taxed differently. In British Columbia, the Ministry of Finance says that when a business’s assets are sold, PST applies to taxable goods such as shop equipment, shelving and display equipment but not to inventory bought solely for resale, and it advises a purchaser to hold a clearance certificate before buying. Whatever the province, the split of the price between fixtures, equipment, stock and goodwill is a conversation for your accountant before the offer is signed, not after.

Who else is looking at the store

Buyers other than first-time owners can be interested in a store. The BDC says potential acquirers could include competitors interested in expanding their product line or market share, or other companies in the value chain, and that a strategic buyer is often willing to pay more because it sees synergies. A first-time buyer may be competing with them, so understand what a strategic buyer would value in this store, and what you would have to match.