Pet supply store due diligence in Canada

A buyer under a letter of intent is no longer judging whether the store is attractive. The job is to verify what the seller has said and to find what has not been said. In a pet supply store the questions can be narrow ones: does the store hold the licence for everything it actually does, does anyone else have a claim on the stock, are the dated goods on the shelf worth what the count says, and will the key suppliers keep supplying. This guide lists the checks starting with licences, and says what a finding means when one appears. The guide to buying a pet supply store covers how to judge the opportunity before this stage.

Licences: match the paper to the activity

Start by listing every activity you can observe at the premises, then ask the seller for the licence covering each one and ask the municipality to confirm its status directly. Categories differ by city. Toronto’s guide attaches a municipal operating licence to a pet shop, lists a pet food business without one, and treats animal grooming and daycare as a category of their own. Brampton states that every pet grooming establishment requires a licence, including out-of-town operators who offer mobile grooming within the city. A gap between what the store does and what it is licensed for is a finding even where the shop licence is current: where the municipality licenses grooming or boarding separately, as Brampton does, a store that grooms or boards under only a retail licence brings that problem with it. Ask also for bylaw complaints, inspection reports and orders.

Registry searches: who else has a claim on the stock

A lender or supplier may have registered a security interest over the store’s stock, fixtures and equipment, and a sale does not by itself clear it. Under section 25 of Ontario’s Personal Property Security Act, where collateral gives rise to proceeds, the security interest continues as to the collateral unless the secured party expressly or impliedly authorized the dealing free of it; section 28 sets out exceptions, such as a buyer of goods from a seller who sells them in the ordinary course of business, so ask your lawyer whether any applies. Alberta tells buyers to search its personal property registry before buying personal property, and British Columbia explains that lenders and sellers register their interests in a debtor’s personal property. Search the seller’s legal name and any earlier trade names, then ask each secured party how it expects to be paid out. Our answer on running a PPSA registry search walks through the steps.

Stock: count by date as well as by value

Reconcile the till system’s running inventory to a physical count that records expiry or best-before dates beside each quantity, and do the count with the seller present, not afterwards. Separate owned stock from anything on consignment, return terms or supplier-owned display. Look hard at slow movers, particularly specialty diets and seasonal lines, and agree whether each is valued at cost, discounted or excluded. A shelf of expired goods is a write-off, not a negotiating point. Our answer on verifying inventory and equipment before buying covers the general method; the pet store adjustment is the date column.

Labels, claims and the store’s own products

Some pet stores repackage bulk food or treats, sell under their own label, or make claims in signage about what a product contains. Under the Consumer Packaging and Labelling Act, a dealer, defined to include a retailer and anyone engaged in the business of packing or selling a product, may not sell or advertise a prepackaged product bearing a label with a false or misleading representation. The Competition Bureau’s guidance explains that courts look at the general impression a marketing claim conveys. The Act has exclusions of its own, including food commodities as defined in the Safe Food for Canadians Act, so put to counsel which regime governs each product line. Treat an unsupported claim as a cost to correct, and as a question about what else has gone unchecked.

Suppliers and the first-week request list

Supplier terms are an area where a pet store can change after signing. Ask for the account agreements and correspondence for each major line, then ask to meet the representatives once confidentiality is in place. You want to know whether an exclusive or territorial arrangement exists, whether it transfers or requires you to reapply, and what rebates and minimums apply. Written confirmation that a supplier will continue on the same terms is worth more than a seller’s assurance. A first-week request list that follows from all of this:

• Municipal licences for every activity, with the municipality’s own confirmation of status and any inspection history.
• Supplier and distributor account agreements, rebate statements and any exclusivity or territory terms.
• The running inventory report, recent physical counts with dates, and write-off records for expired stock.
• Insurance policies and claims history, especially for grooming, training, boarding or daycare.
• Loyalty and auto-ship program terms, outstanding balances, and how customers agreed to the store holding their information.

What a finding means

Not every finding ends a deal, and the useful question is what each one changes. A missing licence for an activity the store runs may mean a buyer cannot lawfully continue that activity from day one where the municipality requires a licence for it, so it becomes a closing condition, a price adjustment or an excluded line, depending on how much the activity earns. A supplier that declines the new owner can reprice the store, because the margin it reported may not survive. A lien on the stock is manageable if it is discharged at closing and serious if nobody can say who holds it. Any unresolved question about live-animal sales, such as missing permits, inspection orders or welfare complaints, is different in kind: the rules sit with the municipality and the province, vary by place, and are a matter for a lawyer who knows the local requirements.