Dollar store due diligence

Diligence on a dollar store spends most of its time on two files that do not show up on a walk-through of the store: the actual terms of the banner or franchise agreement, and the inventory sitting in the back room. Between them, those two files decide whether the margin a buyer is paying for is genuinely reproducible and whether the store’s supply access survives the change of ownership at all.

Read the banner or franchise agreement for what it actually requires

Request the complete agreement text rather than a summary, and check the assignment and consent clause, any minimum purchase or volume commitments, territory protection, remaining term, and — importantly — whether the seller is currently in compliance with every obligation in it. A seller already in default on some part of the agreement is not something a buyer wants to discover after closing, once those obligations, and the consequences of having missed them, have become the buyer’s own.

Count and value the inventory by category, not by faith in the total

Given how many distinct low-value items a dollar store carries, an item-by-item count is rarely practical, so diligence should confirm the category-based counting and landed-cost valuation methodology the parties actually intend to use, and should specifically isolate and separately value aged, damaged or closeout stock rather than accepting it folded into the total at full carrying cost. This single distinction — full-cost stock versus aged stock priced down — is where the real difference between the reported inventory value and its actual worth tends to live.

Confirm import and customs standing before you inherit it

As part of diligence, confirm that imported goods carried by the store have been properly classified and that there is no outstanding duty or compliance issue tied to shipments already landed, since unresolved customs exposure on inventory that has already entered the country does not necessarily disappear simply because ownership of the business changes. It is also worth confirming that imported packaged goods carried by the store meet the bilingual labelling and general product-safety requirements that apply to products sold in Canada, since a supplier’s failure on either point becomes a shelf-level compliance problem for whoever is operating the store when it is noticed.

Confirm royalty and marketing fund payments are current

Where the store operates under a franchise or banner agreement, request a written statement from the franchisor or banner confirming that royalty and marketing fund contributions are paid up to date, rather than relying on the seller’s own bookkeeping to show the same thing. Arrears owed to a franchisor do not necessarily disappear at closing, and a buyer who confirms this directly with the franchisor also gets independent confirmation that the account itself is in good standing heading into the buyer’s own approval process.

Physically verify the aged-inventory schedule, not just the spreadsheet

A seller’s aged-inventory schedule is only as reliable as the physical stock behind it, and it is worth spot-checking a sample of the listed items against what is actually on the shelf or in the back room, since a schedule can understate the problem if slow-moving stock has quietly been rotated back onto display, or overstate it if items marked as aged have already sold through. This is a short, practical check that catches a gap a purely paper-based review would miss entirely.

Search for liens against fixtures and confirm corporate standing

A search of the personal property security registry against the seller — in Ontario under the Personal Property Security Act, with other provinces running their own equivalent regime — confirms whether fixtures and equipment are already pledged as security for a loan the seller has not disclosed, and a corporate search on the selling entity confirms its standing is genuinely in order. Given how much of a dollar store’s asset value sits in fixtures and inventory rather than owned real estate, this check carries more weight here than it might for a business with substantial hard property backing the price.

What a serious finding usually means

A short list of findings in this sector deserves particular attention rather than being treated as routine paperwork:

• A franchise or banner agreement already in default means the buyer inherits that default the moment the sale closes
• Aged or closeout stock carried at full cost overstates the inventory value the buyer is actually paying for
• An unresolved customs or duty issue on imported goods can follow the inventory rather than disappear with the sale
• A registered lien against fixtures means the buyer needs it discharged or priced into the deal
• Import or closeout sourcing relationships that turn out to be personal to the seller do not survive the sale

Confirm what actually transfers versus what has to be rebuilt

Once the agreement, the inventory, the customs position and the registry searches are all in hand, a buyer should be able to state plainly which parts of the business transfer as-is, which require the buyer’s own separate approval or new relationship, and which the current numbers depend on but will not actually be there on day one. That distinction is the real output of this diligence, more useful to a buyer than any single document on its own.