Selling a thrift and consignment store in Canada

An owner who has decided to sell a consignment store has a base of consignors and shoppers to show a buyer, and a good deal of clerical preparation to do: the books have to show, item by item, what the store owns and what it owes. This guide follows the order of work, from reconciling consignor accounts through licensing and consignor communication to the problems that can hold up a close.

Settle the consignor ledger before you list

Begin with a reconciliation that ties three things together: the consignor accounts in the system, the cash set aside to pay them, and the stock physically on the floor. Every tagged item should trace to either the store or a named consignor. Work through consignments that have outlived the holding period in the agreement and return them, mark them down or dispose of them as the agreement allows. Pay out what is owed, or calculate it to a closing date so a buyer sees one clean number. Balances belonging to consignors who never came back need particular care, and a lawyer should say how they are treated before any of that money is counted as store income.

Make the stock count easy to defend

A buyer may want to count what the store owns, so keep owned stock, donated goods and consigned goods visibly apart, and keep the purchase records for anything bought outright. The sale agreement is where the allocation gets priced: the CRA’s guide to selling a business notes that an agreement may set a price for each asset, a value for the inventory and an amount for goodwill, and that selling assets can produce a recapture or terminal loss of capital cost allowance. How inventory is valued in a business sale covers the closing-day count.

Check the sales tax position before the offer

The CRA says a seller may be able to elect jointly with the purchaser so that no GST/HST is payable on the sale of a business, if the conditions the CRA sets out are met, but the election cannot be made where only one or more assets of the business are sold, or where the seller is a registrant and the purchaser is not, and GST/HST is still charged on some supplies even under the election, such as taxable services rendered to the purchaser and taxable supplies by way of lease or licence. Provincial tax adds detail. British Columbia’s PST guidance for buying and selling a business treats shelving and display equipment as taxable assets, while inventory bought solely for resale and goodwill are not, though the value the parties agree for goodwill must be reasonable. Settle which rules fit your structure with an accountant first; do I charge HST when I sell my business is a starting point.

Licences do not move with the store

In the cities cited here, second-hand dealer licensing is municipal, so the rules depend on the city. Regina’s licensing page says a business licence is not transferable from one person to another or from one premises to another, so assume the buyer applies in their own name and find out how long that takes. Saskatoon’s page says businesses dealing in non-exempt secondhand goods must record each transaction and report it immediately to the police service by an approved electronic means, and that those records must be available for inspection; the page lists goods exempt from reporting, including books, most adult and children’s clothing, and furniture. Have your own transaction records in order, because a buyer may ask to see that they were kept.

Tell consignors on a plan, not by rumour

Consignors are both your suppliers and your customers, and a rumour that the store is for sale can unsettle them before a buyer is secured. Decide in advance who will know and when. Consignor names, contact details and earnings are personal information, which limits what you can show a prospective buyer. Section 7.2 of PIPEDA, the federal private-sector privacy statute, says that organizations that are parties to a prospective business transaction may use and disclose personal information without the individual’s knowledge or consent if they have an agreement requiring the recipient to use and disclose it solely for purposes related to the transaction, to protect it with appropriate security safeguards and to return or destroy it within a reasonable time if the transaction does not proceed, and if the information is necessary to determine whether to proceed and, if so, to complete the transaction. If the transaction is completed, further use without consent depends on other conditions, which include one of the parties notifying the individuals within a reasonable time that the transaction has been completed and that their information has been disclosed. Neither rule applies to a transaction whose primary purpose or result is the purchase, sale or other acquisition or disposition, or lease, of personal information. Whether PIPEDA or a provincial statute governs your store is a question for your lawyer. Share a summarized ledger early and hold the names for later.

What can delay a close

• Landlord consent: in Ontario, the Commercial Tenancies Act deems a covenant against assignment to be subject to a proviso that consent is not unreasonably withheld, unless the lease expressly provides otherwise, and a judge can decide the question if the landlord refuses or neglects to consent; outside Ontario, read the lease and check your province’s rules
• A payout total that does not match what the buyer’s review finds
• A licence application in the buyer’s name that is still pending on the planned closing date
• Top consignors who say they will not stay under a new owner, if the agreement makes their staying a closing condition
• Point-of-sale or consignment software whose licence cannot be assigned without the vendor’s consent