Selling a toy store in Canada

An owner selling a toy store can sequence the preparation around three things to check in the store’s own records: how much of the year’s sales fall in the holiday period, which supplier relationships depend on the owner personally, and how the value of the stock changes as the season passes. The order below puts suppliers and the product-safety file first, the lease next, and the tax and inventory mechanics after that, with the choice of closing date running through all of them. The steps are the same whether a sale runs through a business broker or privately.

Choose the closing window with the stock in mind

The closing date affects which party carries the seasonal stock. A closing just after the holiday season can leave the buyer holding unsold seasonal stock; one set before the season’s ordering decisions leaves supply commitments to be divided between the parties; one set after the sell-through leaves unsold seasonal and licensed stock to be counted and priced. Whichever date is picked, the purchase agreement can say who owns post-season stock and how it is valued, and a post-closing working-capital adjustment is one mechanism for settling the difference.

Speak to suppliers before buyers do

If a store relies on exclusive or licensed lines, the supplier’s attitude to a change of ownership decides how much of that a buyer can keep. The seller can ask each supplier whether the new owner would need to apply for its own account and whether an allocation depends on the store’s sales history. BDC advises sellers to review contracts, leases and business agreements and update them where needed, to address any supplier or customer concentration issues or think about ways a buyer could mitigate them, and to show a buyer a plan for issues that cannot be resolved. BDC also says unaddressed issues could affect the price or terms of a sale. Supplier conversations belong inside the arrangements described in how to keep a sale confidential.

Put the product-safety file in order

A buyer can ask for the retailer’s records before an offer is firm. The Canada Consumer Product Safety Act requires a retailer to prepare and maintain documents showing the person it obtained each product from and the location where and period during which it sold the product, to keep them at its place of business in Canada or another prescribed place, and to provide them to the Minister of Health on written request (section 13, which also lets the Minister exempt a person from keeping them in Canada). Before listing, a seller can check that the file exists for every toy line currently stocked and compare recall notices against the shop floor and the back room, so that nothing affected is on display when buyers visit. Records that cannot be produced, or a recall nobody followed up, are the kind of unaddressed issue BDC says could affect the price or terms of a sale.

The lease and the landlord

Where a store’s location matters to its sales, the lease assignment is worth planning early. In Ontario, a covenant against assigning or subletting without consent is deemed subject to a proviso that consent is not to be unreasonably withheld, unless the lease contains an express provision to the contrary, and, where the landlord refuses or neglects to consent, a judge of the Superior Court of Justice can, on the application of the tenant or the assignee, determine whether consent is unreasonably withheld (Commercial Tenancies Act, section 23). That is an Ontario rule, and the lease itself can displace it; for a store in another province, check that province’s law. Whatever the province, the assignment clause is best read before a buyer is introduced, since it shows whether the landlord’s consent is needed. See what to check in the lease.

Tax and inventory mechanics that follow the deal shape

How the sale is structured shapes the paperwork. The Canada Revenue Agency notes that, in some cases, a sales agreement sets out a price for each asset, a value for the inventory and, if applicable, an amount attributed to goodwill, and that a seller of a business may be able to jointly elect with the purchaser so that no GST/HST is payable on the sale, if the two conditions the CRA sets out apply, including that the seller is selling a business it established or carried on. The election cannot be made if only one or more assets are sold, or if the seller is a registrant and the purchaser is not. Form GST44 is the election form. The choice between selling assets and selling shares can change both the tax result and the way contracts and the lease move to the buyer, and it is covered in asset sale vs share sale.

Points to settle before closing

• Whether any supplier wants to review the buyer before agreeing to open an account or continue an allocation.
• Whether landlord consent can arrive before the buyer’s financing deadline.
• How seasonal and licensed stock will be counted and valued on the closing date.
• Whether product-safety records can be produced for each line currently on the shelf.
• Whether the purchase agreement settles the split between inventory, equipment and goodwill early.