How do I buy a lawn care business in Canada?

Mowing, aeration and fertilizing look like a simple business to buy: a truck, a trailer, some equipment and a route of regular customers. The first thing to settle is how much of the work goes beyond mowing. If the company applies pesticides, provinces such as British Columbia and Ontario license that work, and a buyer should not assume the licences come with the sale. After that, the steps are the ones any buyer takes: look closely at the books, the contracts, the vehicles and equipment, the seller’s past obligations and the way the purchase will be paid for. This guide follows that order.

Find out whether the work needs a pesticide licence

A route that sprays weeds or treats for insects raises a licensing question, and the answer depends on the province. British Columbia’s Integrated Pest Management Act says that, except as provided in the regulations, a person must not provide or offer to provide any service respecting pesticides unless the person holds the licence the regulations require and complies with its terms and conditions. Ask the seller exactly which services the business sells, then ask the provincial pesticide regulator what each one requires.

Check whose names the licences are in

Under the BC Act a licence is held by a person, and individuals can need their own certificate. Under the BC Act, an individual who uses a prescribed class of pesticide, or a pesticide for a prescribed use, must hold the certificate the regulations require for that purpose and comply with its terms and conditions, and a licensee who provides a service using a prescribed class of pesticides must make sure a certified individual performs the duties that the regulations reserve for one. Ontario’s regulation under the Pesticides Act says that an individual applying for an operator’s licence must be a licensed exterminator, and an applicant for a new operator’s licence must list the names and licence numbers of the licensed exterminators it employs. So ask for copies of every licence, find out who holds each one, and ask the regulator whether a licence can move to a new owner.

Confirm what you can actually take over

BDC’s due diligence guidance points to finances, prospects and legal issues, and advises making sure key contracts, such as leases, regulatory agreements and customer contracts, can be assigned to you if necessary. For a lawn care company that means reading the route contracts, any commercial or municipal maintenance agreements, the yard or shop lease and any agreements with the regulator. Look for clauses that need the customer’s or landlord’s consent. See how a lender looks at the lease in why a buyer’s lender cares about the lease term.

Test the numbers against the season

BDC describes due diligence as a review of the target’s finances, prospects and legal issues. If the business is seasonal, ask for monthly revenue over several seasons and compare it with the seller’s summary. Ask how much of the revenue comes from recurring route customers and how much from one-time jobs such as cleanups, how long the main customers have stayed, and whether crews or the seller hold the customer relationships. Ask for an equipment list with ages and maintenance records, and find out which machines are owned outright, leased or financed. Have your accountant recast the owner’s pay before you rely on any profit figure.

Protect yourself from what the seller did before closing

BDC warns that even after a buyer has gone through every document, the buyer could still be liable for something the seller did or failed to do before handing over the business. Its suggested protection is an indemnity agreement from the seller, promising to be responsible for any unforeseen liability that could arise for a period after the sale. BDC also advises contacting the Workers Compensation Board to make sure the seller is in good standing, and obtaining registration documents to confirm that buildings and vehicles are owned by the seller. If the business runs on trucks and trailers, do that check for each one.

• Ask which services involve pesticides, and which licences and certificates each one needs in your province.
• Get copies of the licences and certificates, and note the name each one is issued in.
• Read every customer contract, the lease and any regulator agreement for assignment or consent clauses.
• Confirm workers’ compensation standing and the registration documents for each vehicle.
• Ask your lawyer about an indemnity from the seller for pre-sale liabilities.

Ask about the GST/HST election and how you will pay

The Canada Revenue Agency’s form GST44 is used to elect to not have GST/HST apply to the sale of a business or part of a business. Whether the election fits your purchase is a question for an accountant. BDC says it can review a financing request once you have identified a business and negotiated the main terms of the purchase. BDC lists a business purchase or transfer loan among its financing products, so ask any lender what it will want to see, including the licences and contracts above, and how a vendor take-back would be handled.