Should You Buy a Business with a Partner? (Don't Do It Until You Watch This)

 

Buying a Business With a Partner: The Questions You Need to Answer First

Buying a business with a partner can give you more capital, complementary skills, additional experience and someone to share the workload. But it also adds an entirely new layer of risk and complexity to the acquisition process.

Before you commit money to a deal, you and your prospective partner should be able to answer five important questions:

• Should this person even be your business partner?

• Should ownership really be split 50/50?

• What happens when the business needs more money and only one partner can provide it?

• How will you divide responsibilities, authority and compensation?

• What happens if the partnership eventually stops working?

These questions should be answered before you buy the business—not after problems arise.

1. Should This Person Even Be Your Partner?

Buying a business with another person actually involves three projects at once. You are creating a partnership, searching for and acquiring a business, and designing the future operating relationship between the partners.

As David C. Barnett explains, “A business partnership can be even more involved and laborious than a marriage.”

That means you should first question why you want a partner at all.

Perhaps you need additional money. Could you borrow it instead? Could an investor provide capital without becoming an operating partner?

Maybe you want another person because they possess expertise you lack. Could you hire an employee, consultant or coach instead?

There are legitimate reasons to have a partner. Someone may bring valuable relationships, reputation, specialized skills or experience. But loneliness, fear of responsibility or simply wanting someone else to share the burden are weak foundations for a partnership.

Once you decide a partnership makes sense, look carefully at trust, respect and alignment. Do you both want the same outcome from the business?

One partner may want to rapidly grow and sell the company within three years while the other wants to operate a stable, profitable business for 15 years. Neither objective is necessarily wrong, but combining them in one partnership can create predictable conflict.

2. Should You Really Split the Business 50/50?

Two partners do not automatically mean two equal ownership positions.

As Barnett puts it, “Fifty-fifty does not necessarily equate to a fair deal.”

Consider everything each partner is contributing: cash, labour, expertise, relationships, personal guarantees and financial risk.

Suppose one person provides most of the acquisition capital while the other brings 15 years of industry experience and agrees to manage the company for $50,000 per year instead of the $75,000 market salary. That $25,000 annual wage concession represents a real economic contribution.

Risk matters too.

If both partners personally guarantee a business loan, the guarantee may be joint and several. That doesn't necessarily mean each partner is economically exposed to only half the debt. A partner with significant personal assets may have considerably more at risk if the business fails.

Ownership, compensation, shareholder loans and other financial arrangements can be structured to recognize these differences rather than automatically dividing everything equally.

3. What Happens When the Business Needs More Money?

Sooner or later, many businesses need additional capital.

Before entering a partnership, decide what happens when that moment arrives.

Imagine two partners each own 50%. The company suddenly needs another $100,000, but only one partner can provide the money.

Is the additional $100,000 a shareholder loan? Does that partner receive additional shares? If new shares are issued, does the original 50/50 ownership structure disappear?

These decisions become much harder when the business is already experiencing financial stress.

Barnett recommends what he calls “planning for the next dollar.” Partners should establish the rules governing future capital requirements before the money is actually required.

4. Who Is Actually in Charge?

Ownership and employment are different things.

One partner might own half the company but work only five hours per week. Another might spend 50 hours running daily operations. Compensation for that work should not necessarily correspond to ownership percentages.

Responsibilities and decision-making authority should also be clearly divided.

Otherwise, every decision can become a committee meeting.

“If you have to wait, talk to your partner… you actually become less efficient,” Barnett explains.

One person might control operations while another handles marketing or finance. Each needs enough authority to make decisions within their area without seeking permission for every routine matter.

Even in a 50/50 partnership, someone will normally need to function as president or general manager. At the ownership or board level, both partners can establish strategic direction. Operationally, however, an organization cannot effectively have two people simultaneously acting as the ultimate boss.

5. What Happens When Something Goes Wrong?

Partners naturally concentrate on what happens if everything succeeds.

Good partnership planning also asks what happens when things fail.

What if your partner stops working but still owns their shares?

What happens if one partner becomes incapable of performing their assigned management role?

What happens if one partner dies, becomes disabled or wants to retire ten years before the other?

And what happens when the partners simply can't agree?

These issues become even more complicated when the business partners are married. As Barnett says, “A marriage certificate is not an operational guide for a business.”

Partners should discuss dispute resolution, departures, buyouts, valuation methods, death, disability and eventual exit while everyone is still friendly.

Those decisions should then be documented properly with legal and accounting professionals. A generic boilerplate shareholders agreement may not reflect the economics or realities of your particular business.

The objective is not to predict every future problem. It is to establish enough clarity that problems can be handled without destroying the company.

Ultimately, buying a business with a partner can work extremely well. But the relationship needs to be designed just as carefully as the acquisition itself.

Before committing your money, test the partner, design the economics, define the work, establish the rules and understand how each person eventually gets out.

Those conversations may feel uncomfortable before the deal.

They will be considerably more uncomfortable after it.

Learn more by signing up to our Business Buyer Advantage: Online Training, including the new bonus module at www.BusinessBuyerAdvantage.com 

When a Business Opportunity Sounds Too Good to Be True

 

Imagine someone tells you about an investment capable of producing a 229% annual return.

Put in $1,000, receive $2,290 every year, and eventually get your original investment back.

Does that immediately sound like an incredible opportunity?

Or does it make you wonder whether something is wrong with the calculation?

When you're evaluating businesses, investments, courses, books, or advice online, that second question may be the more important one.

Anyone Can Be an Expert Online

The internet has dramatically changed how information gets published.

Decades ago, getting a book published or appearing on television usually meant passing through several gatekeepers.

Publishers and broadcasters had money and reputations at risk, so information was reviewed before reaching a large audience.

Today, almost anyone can publish a book, create a YouTube channel, launch a podcast, or advertise themselves as an expert.

That's created incredible access to information.

But it has also placed more responsibility on the audience to determine whether that information makes sense.

Don't Assume a Published Calculation Is Correct

Something appearing in a book, broker package, video, or professional-looking presentation doesn't automatically make it accurate.

Even people with experience can make mistakes.

For example, confusing return on equity with return on investment can produce numbers that make an opportunity appear much more attractive than it really is.

Instead of accepting the calculation because it came from someone who appears knowledgeable, work through the numbers yourself.

Ask whether the result makes economic sense.

Question Extraordinary Returns

If someone promises an unusually high investment return, don't focus only on how much money you could make.

Ask why the opportunity exists.

If someone genuinely discovered a repeatable method for earning extraordinary returns, why are they spending money advertising it to strangers?

Why aren't they simply using the strategy themselves?

That doesn't automatically mean every course, investment strategy, or opportunity is illegitimate.

It means extraordinary claims deserve additional scrutiny.

Understand the Motivation Behind the Message

Whenever someone gives you financial or business advice, consider what they ultimately want you to do.

Are they selling:

• A book?

• A course?

• Consulting?

• Coaching?

• An investment?

• Another high-priced program?

There's nothing inherently wrong with using educational content to market a legitimate product or service.

The important thing is understanding the relationship.

When you know how someone benefits from your attention, you can evaluate their claims with better context.

Authority Isn't the Same as Expertise

Being an author, podcast guest, social media personality, or conference speaker can create credibility.

But those things aren't necessarily proof that someone's advice works.

Even large platforms can feature guests whose claims haven't been thoroughly investigated.

That's why you shouldn't outsource your judgment entirely to the person conducting the interview, publishing the book, or hosting the event.

Listen to the claim.

Then examine whether the mechanics actually work.

Ask How the Strategy Works in the Real World

This becomes especially important when you're learning about buying businesses.

Someone might tell you that you can acquire companies with no money, produce extraordinary returns, or use a financing strategy that sounds almost effortless.

Don't stop at the headline.

Ask practical questions:

How does the financing actually work?

What will the lender require?

Where does the equity come from?

Who provides personal guarantees?

What happens if the business underperforms?

A strategy that sounds fantastic at a high level can look very different once you examine how it would actually be executed.

Slow Down and Think

Good decision-making isn't about automatically rejecting every unusual opportunity.

It's about developing enough skepticism to investigate before acting.

When something sounds unusually profitable, easy, or certain, slow down.

Check the assumptions. Understand the numbers. Consider the source. Look at the person's incentives. And determine whether the strategy still makes sense when applied to the real world.

If you want to learn more about creative private investments, check out my book Invest Local — available on Amazon or as a PDF from DCBBooklist.com.

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Key Takeaways

Don't accept business or investment claims simply because they come from someone who appears credible. Understand the numbers, question extraordinary promises, consider the source's incentives, and make sure the mechanics work before putting your money at risk.

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True Story Buy a Biz $1 sell for $50M! The Poundland reality

 

A Business Bought for £1 Could Sell for £50 Million—Here's the Catch

Imagine buying an entire retail chain for just £1.

Now imagine hearing that the same business could be sold for nearly £50 million.

Sounds like the ultimate business acquisition success story, doesn't it?

But there's a major detail missing from that headline.

I recently came across a story shared by Clinton Lee, who wrote the foreword to my book Business and Asset Values. It involved Poundland, a struggling British discount retail chain acquired by turnaround specialists Gordon Brothers for a nominal £1.

At the time I reviewed the story, there were reports of a potential £50 million sale, but I couldn't find confirmation that such a transaction had actually happened.

What interested me wasn't the potential resale price.

It was the enormous difference between paying £1 to acquire a business and having enough money to actually operate it.

And that's a lesson every small business buyer needs to understand.

The Reality Behind Poundland's £1 Acquisition

Poundland is a British discount retailer, somewhat comparable to Dollar General in the United States or Dollarama in Canada.

When Gordon Brothers acquired the struggling chain, the nominal purchase price was just £1.

That sounds incredible until you understand what the buyers were taking on.

Poundland was losing money and required substantial restructuring. Gordon Brothers, a specialist turnaround firm, needed considerable additional financing to support operations while implementing changes.

The buyers initially announced plans for up to £80 million in financing, with the working capital facility eventually increasing to £95 million.

As I explained:

"The headline is not false. It is it's just incomplete." —David C. Barnett

The £1 represented the nominal price paid for the shares.

It didn't represent the total financial commitment required to take control of the company and attempt to make it profitable.

The buyers also faced difficult decisions involving store closures, staffing reductions, and other restructuring expenses.

This wasn't a business someone could realistically acquire and operate with a single pound in their pocket.

Purchase Price vs. Total Project Cost

One of the concepts I consistently teach business buyers is the importance of understanding the total project cost.

The amount you pay the seller is only one component of the investment.

You may also need money for inventory, working capital, equipment, operating losses, and other expenses required to keep the business functioning.

As I explained in the video:

"The purchase price of the shares and the amount of capital required to own and operate the company are two entirely different numbers." —David C. Barnett

Poundland is a large-scale example of this principle.

But the same problem appears in small business acquisitions every day.

A $1 Business That Needs $800,000 to Operate

Let's bring this down to a typical Main Street business.

Imagine a distribution company generating $2.5 million in annual sales and approximately $150,000 in Seller's Discretionary Earnings (SDE).

Suppose comparable businesses are valued at around 2.2 times SDE.

That suggests an operating business value of approximately $330,000.

Even at three times SDE, the value would be around $450,000.

Now imagine the seller agrees to sell you the business for just $1.

It sounds like you've found an extraordinary bargain.

But there's a problem.

The Missing Inventory

The company normally requires approximately $300,000 in inventory to satisfy customer demand.

However, by closing day, the seller has reduced inventory to just $100,000.

You're receiving that remaining inventory for practically nothing.

But the business is now missing $200,000 in inventory required to operate at its normal level.

If you want to continue satisfying customers, you'll need to replace that missing stock.

The Missing Accounts Receivable

Suppose the seller also keeps all existing accounts receivable because those sales occurred before closing.

The business normally takes around 60 days to collect payments.

With annual sales of $2.5 million, that represents approximately $411,000 in receivables.

You'll need to finance operations while building up new receivables and waiting for customers to pay.

Here's what the situation looks like:

Investment requirement	Approximate amount
Business purchase price	$1
Inventory shortfall	$200,000
Receivables funding requirement	$411,000
Additional operating cash	Depends on business needs
Potential total capital required	$700,000–$800,000

These are illustrative figures from the example, not a calculation of the exact financing requirement for every distribution business. Supplier credit, accounts payable, and collection arrangements could change the amount needed.

Nevertheless, the central problem remains.

You might pay only $1 for the business but still need hundreds of thousands of dollars to operate it.

The Day Two Problem Nobody Talks About

Many aspiring business buyers focus almost entirely on getting a deal closed.

They negotiate the price, arrange the paperwork, and celebrate becoming a business owner.

But what happens the next morning?

I call this the Day Two Problem.

On day one, you acquire the business.

On day two, you're responsible for running it.

You need enough inventory to fill orders, enough cash to pay employees and suppliers, and enough working capital to support operations while waiting for customer payments.

A low purchase price doesn't eliminate those requirements.

It simply means you paid less to the seller.

And if the company has been stripped of the operating assets it normally needs, you may face a substantial capital investment immediately after closing.

When a Profitable Business Becomes a Dead Capital Business

Here's where our hypothetical distribution company becomes especially interesting.

The business might be worth approximately $330,000 based on its earnings.

But it could require $700,000–$800,000 in operating capital.

That's a serious mismatch.

I refer to businesses like this as dead capital businesses.

They require substantial capital to remain invested in the operation relative to the earnings and returns they produce.

The business may have customers, employees, millions in annual sales, and even positive profits.

But that doesn't automatically make it a good investment.

As I explained:

"A business can have customers. It can have millions of dollars in sales. It can even be profitable. But that does not automatically make it a good place for your capital." —David C. Barnett

If the investment required to operate the company is too large relative to its earnings, the buyer may be tying up money that could produce a better return elsewhere.

And buying that business for $1 doesn't solve the problem.

Why Some Owners Are Willing to Sell for Almost Nothing

Sometimes a seller accepts a nominal purchase price because the alternative is even more expensive.

Imagine the owner of our distribution company decides to close it instead.

They may need to:

• Pay employee severance and other termination obligations.

• Settle outstanding lease commitments.

• Liquidate remaining inventory and equipment.

• Pay suppliers and other creditors.

• Cover the administrative costs of winding down operations.

Closing a business can require substantial time and money.

Finding someone willing to take over the operation—even for $1—might allow the seller to avoid some of those difficulties, depending on the transaction structure and liabilities transferred.

That's why a very low purchase price should make buyers curious rather than automatically excited.

You need to understand why the seller is willing to accept so little.

What Professional Turnaround Buyers Understand

Gordon Brothers didn't acquire Poundland simply because it was cheap.

They're experienced turnaround specialists who understand distressed businesses, restructuring, and financing.

They also had access to substantial capital.

That distinction matters.

Turning around a failing business can involve difficult operational decisions, additional financing, and the possibility that the turnaround won't succeed.

Someone with limited cash and little restructuring experience may be completely unprepared for those challenges.

Buying a distressed company isn't just about finding a seller willing to accept a low price.

It's about having the resources and expertise required to solve the problems that made the business distressed in the first place.

Five Questions to Ask Before Buying a Business for $1

If you encounter a business being offered at an unusually low price, don't focus exclusively on the headline.

Investigate what you're actually acquiring.

1. What working capital is included?

Determine how much inventory, cash, and accounts receivable will transfer at closing.

2. What liabilities will you assume?

Understand any outstanding debts, lease commitments, employee obligations, or other liabilities included in the transaction.

3. How much cash will the business need immediately after closing?

Estimate the money required for payroll, inventory replenishment, suppliers, rent, and everyday operations.

4. Will suppliers continue providing credit?

A new owner may not automatically receive the same trade credit terms enjoyed by the seller.

5. Does the total investment make financial sense?

Compare the full amount of capital required with the earnings and cash flow you expect to receive.

This last question is especially important.

A business can be cheap to purchase and still be an extremely expensive investment.

Final Thoughts: A Bargain Price Doesn't Guarantee a Bargain Business

The Poundland story demonstrates why business acquisition headlines can be misleading.

A retail chain changing hands for £1 sounds remarkable.

But when the buyer needs tens of millions of pounds in additional financing, the economic reality is much more complicated.

The same principle applies to small businesses.

You might acquire a company for $1, but if it requires $800,000 in working capital to generate $150,000 in SDE, you need to examine whether that investment makes sense.

The real question isn't how cheaply you can buy a business. It's how much money you'll need to invest to make that business work.

Always look beyond the purchase price.

Understand the balance sheet, calculate the working capital requirements, and evaluate the return on your total investment.

That's how you avoid turning what looks like an incredible bargain into a very expensive mistake.

Learn to Evaluate Business Deals the Right Way

If you're considering buying a business, my Business Buyer Advantage program can help you understand valuation, financing, due diligence, and the risks involved in acquiring an existing company.

Explore Business Buyer Advantage

Want to understand business valuations more deeply? My book, Business and Asset Values, explores how owners, buyers, sellers, lenders, and advisors should think about the value of businesses and equipment.

Explore Business and Asset Values

If you need help forecasting cash flow and understanding the capital requirements of a business, explore my Cash Flow Forecasting and Business Plan Writing Program.

Explore Business Plan School

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How a Staged Buyout Can Help You Buy a Business Over Time

 What happens when you've found a business you want to buy, but you don't have enough money to purchase it all at once?

And what if you also need the seller to remain involved for several years?

A staged buyout may provide another way to structure the transition.

Instead of purchasing 100% of the company on closing day, the buyer gradually increases their ownership while working alongside the seller.

Start With a Small Ownership Stake

Imagine a buyer initially purchases just 5% of the company.

Both the buyer and seller continue working in the business and receive salaries for the jobs they perform.

When the company generates profits and distributes dividends, the buyer's portion of those dividends can be used to purchase additional shares from the seller.

Over time, the buyer gradually increases their ownership.

Rather than one large transaction, the acquisition becomes a planned transition.

Learn From the Seller While They're Still Involved

One major advantage of a staged buyout is the opportunity for the buyer to learn directly from the existing owner.

The seller may have years—or decades—of experience with the company's customers, employees, suppliers, systems, and industry.

Instead of transferring all that knowledge during a short transition period after closing, the buyer can learn while actively participating in the business.

That can create a much more gradual transfer of knowledge and responsibility.

The Seller Can Benefit From Future Growth

A staged buyout can also create an interesting opportunity for the seller.

Rather than establishing one fixed value for the entire business today, the parties can create a buy-sell agreement containing a formula for determining the value of shares over time.

If the company continues growing and becoming more profitable, its value could increase.

That means the seller may receive progressively higher prices as additional shares are purchased.

It Creates a Planned Exit Strategy

Many business owners don't know exactly who will eventually buy their company.

A staged buyout can change that.

The seller already knows who the future owner is and can gradually prepare that person to take control.

If retirement is several years away, the transition can continue according to schedule.

If an unexpected personal situation accelerates the seller's need to leave, the parties may already have a structure in place for completing the transition sooner.

What Happens When the Buyer Reaches 49%?

In a traditional staged buyout, the buyer may gradually acquire shares until reaching approximately 49% ownership.

At that point, the remaining shares can be purchased in a larger transaction.

The buyer may need bank financing to complete that final step.

But there's an important difference compared with financing the entire acquisition on day one.

By then, the buyer may have spent years working inside the company, participating in management, and demonstrating that they can operate the business successfully.

If the company has also remained profitable enough to distribute dividends, the buyer now has an established track record.

That can create a very different conversation with a lender.

Not Every Business Is Suitable for a Staged Buyout

This strategy requires the right type of company.

There needs to be enough organizational structure for both the buyer and seller to have clearly defined responsibilities without constantly interfering with each other.

The business also needs consistent profitability.

If dividends are being used to help the buyer acquire additional shares, the company must actually generate enough profit to make those distributions possible.

That makes staged buyouts better suited to established, well-run businesses with clear roles, reliable systems, and sustainable earnings.

Plan the Transition Before You Need It

A staged buyout isn't simply a financing technique.

It can also be a long-term succession strategy.

The buyer gets time to learn the company and gradually build ownership. The seller gets time to transfer knowledge, receive payment over multiple years, and prepare for an eventual exit.

When properly planned, ownership and responsibility can move together instead of changing overnight.

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Key Takeaways

A staged buyout allows a buyer to acquire a business gradually while learning from the seller and building a track record inside the company. For the seller, it can create a planned succession strategy while allowing them to participate in the company's value during the transition.

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PREMIERE- PG Insurance with Brendan Burdette and Ryan Conner

 

Can You Insure an SBA Personal Guarantee When Buying a Business? 

New guest – Brendan Burdette and Ryan Conner

Could insurance protect your personal assets when an SBA-backed business acquisition fails?

I’m joined by Brendan Burdette and Ryan Conner, founders of Braddock Road Insurance Corporation, to explain personal guarantee insurance for business buyers.

Tune in as we discuss how SBA personal guarantees work, when coverage may respond, how policies are underwritten, and what happens when a lender calls the guarantee after a business failure.

We also examine premiums, renewals, collateral, bankruptcy misconceptions, lender communication, moral hazard, and whether this new product could encourage more qualified entrepreneurs to buy businesses.

This is a must-see event for acquisition entrepreneurs, searchers, lenders, brokers, and anyone considering an SBA-financed acquisition.

Set a reminder on YouTube:  https://youtu.be/3lvrJLPgXnc 

It will be going live Thursday September 17, 2026 at 2:30 PM Atlantic Time and 1:30 PM Eastern Time

See you there!

David C Barnett

PST/GST/HST: What You Need to Know When Buying a Business in Canada

 

Buying a Business in Canada? GST, HST, and PST Could Cost You Thousands

Imagine negotiating a $500,000 business acquisition, arranging your financing, and preparing for closing.

Everything looks good until someone asks a question you hadn't considered.

What about sales tax?

Here in New Brunswick, where I live, the Harmonized Sales Tax (HST) is 15%. Applied to a $500,000 purchase, that could mean another $75,000.

Suddenly, your half-million-dollar acquisition might require $575,000 just to complete the transaction.

Fortunately, Canada has special tax provisions that can help buyers avoid paying GST or HST upfront on qualifying business acquisitions.

But there's a catch.

Not every transaction qualifies, and federal tax relief doesn't necessarily eliminate provincial sales taxes.

Understanding these rules before making an offer can prevent a very expensive surprise.

Asset Sales vs. Share Sales: Why the Difference Matters

Before discussing sales taxes, we need to distinguish between two types of business acquisitions.

In a share sale, you purchase shares of a corporation. The corporation continues to own its equipment, inventory, contracts, and other assets.

In an asset sale, you purchase the underlying assets of the business, which might include:

• Machinery, equipment, and vehicles

• Inventory and furniture

• Customer lists and contracts

• Websites, trademarks, and intellectual property

• Goodwill and potentially real estate

This distinction matters because different sales tax rules can apply when business assets are transferred individually.

For this discussion, we're focusing specifically on asset purchases of Canadian businesses.

Understanding GST, HST, PST, and QST

Canada doesn't have one completely uniform sales tax system.

Depending on the province, you may encounter several types of taxes.

Tax	What it means
GST	Federal Goods and Services Tax
HST	Harmonized Sales Tax combining federal and provincial components
PST	Provincial Sales Tax in provinces with separate systems
RST	Retail Sales Tax, including Manitoba's system
QST	Quebec Sales Tax

GST and HST generally operate as value-added taxes.

Registered businesses collect tax on taxable sales and may recover eligible GST/HST paid on business purchases through input tax credits.

But when purchasing an entire business, that process can create a significant cash flow problem.

For example, if you purchase $1 million in taxable business assets in a jurisdiction with 15% HST, you could face $150,000 in tax at closing.

Even if you're entitled to recover that amount later, you still need the money upfront.

And that creates a financing problem.

The GST44 Election: Avoiding a Major Cash Flow Problem

Canada's Excise Tax Act includes a provision that allows qualifying buyers and sellers to jointly elect for GST/HST not to apply to certain transfers of business property.

The election is commonly known as Form GST44, formally titled GST/HST Election Concerning the Acquisition of a Business or Part of a Business.

This can be extremely useful when acquiring an operating business.

But it doesn't apply simply because you're buying something from another company.

What Does "All or Substantially All" Mean?

Generally, the transaction must involve all or substantially all of the property reasonably necessary to operate the business or the acquired part of it.

The Canada Revenue Agency generally interprets this as 90% or more of the necessary property.

For example, if you purchase one truck from a trucking company, you're purchasing equipment—not the operating business.

But if you acquire the trucks, customer relationships, operating systems, and other property required to continue the trucking operation, the transaction may qualify.

You might not even need to purchase the company's real estate if the business can continue operating from the property under a lease.

The important consideration is whether you're acquiring what is reasonably necessary to continue operating the business.

Don't Assume the GST44 Election Happens Automatically

One of the biggest mistakes buyers make is assuming that including GST44 language in the purchase agreement means everything has been handled.

It doesn't.

The buyer and seller must satisfy the applicable requirements, properly complete the election, and ensure the required filing occurs.

If you're creating a new corporation to purchase the business, its GST/HST registration status should be addressed before closing.

As I emphasized in the video:

"Who is actually responsible for filing the GST 44, right?" —David C. Barnett

That question matters.

Your lawyer might prepare the transaction documents, but your accountant or acquisition company may be responsible for filing the election.

Make sure everyone understands their responsibilities and deadlines.

And remember that certain elements of the transaction, including some services, leases, licences, and real estate arrangements, may require separate GST/HST treatment.

Why GST44 Doesn't Automatically Eliminate Provincial Sales Tax

Here's the distinction I really want Canadian buyers to understand.

"A GST 44 does not necessarily mean no sales tax." —David C. Barnett

The GST44 election addresses qualifying federal GST/HST treatment.

It doesn't automatically eliminate provincial taxes imposed under separate legislation.

That's especially important in British Columbia, Saskatchewan, Manitoba, and Quebec.

British Columbia: Watch the PST on Business Assets

Imagine buying a business in British Columbia for $1 million.

The purchase price is allocated as follows:

Business asset	Allocated value
Machinery and equipment	$250,000
Inventory	$100,000
Goodwill and intangible assets	$650,000
Total	$1,000,000

Even if the transaction qualifies for the GST44 election, British Columbia's PST rules must be considered separately.

Certain machinery and equipment may be taxable, while other assets or inventory acquired for resale may receive different treatment or qualify for exemptions.

The important question becomes which assets are taxable under provincial law.

Why Purchase Price Allocation Matters

Suppose the buyer and seller decide to assign only $25,000 to equipment and allocate the remaining $975,000 to goodwill to reduce potential PST.

That might sound clever.

But tax authorities aren't required to accept unrealistic valuations simply because they're written into an agreement.

If the business has machinery clearly worth hundreds of thousands of dollars, an artificially low equipment allocation could create problems.

An independent machinery and equipment appraisal may help support the allocation.

It can also provide useful information for financing, depreciation, and other aspects of the transaction.

Saskatchewan and Manitoba

Saskatchewan and Manitoba also have separate provincial sales tax systems.

Depending on the assets involved, provincial tax may apply even when the federal GST44 election is available.

In some circumstances, the seller collects the provincial tax. In others, the purchaser may need to self-assess and remit it.

These obligations need to be investigated before closing.

Quebec: GST and QST Require Separate Attention

Quebec has both federal GST and its own Quebec Sales Tax system.

Qualifying business transfers may be eligible for elections under both systems, but the requirements and documentation must be considered separately.

Buyers need to understand which elections apply, how they're completed, and who is responsible for filing them.

HST Provinces

In provinces such as New Brunswick and Ontario, buyers generally don't face the same additional PST layer that exists in British Columbia, Saskatchewan, or Manitoba.

That can simplify certain acquisitions.

However, qualifying for the GST44 election and correctly handling any exceptions remain important.

Other Taxes and Closing Costs Buyers Often Overlook

Sales tax isn't the only additional cost that can affect your acquisition.

Depending on the transaction, you may also encounter:

• Land or property transfer taxes

• Vehicle registration fees and applicable taxes

• Legal and accounting expenses

• Financing fees

• Inventory and working capital adjustments

• Other transaction-related expenses

And if the seller agrees to provide consulting services after closing, those services may have different tax treatment from the business assets being acquired.

The purchase agreement should clearly distinguish these arrangements.

Why You Should Negotiate Asset Allocation Early

Another mistake I frequently see is buyers negotiating the total purchase price without discussing how that price will be allocated among the assets.

Then, shortly before closing, someone suggests leaving the allocation to the accountants.

That's a dangerous approach.

The seller and buyer may have different tax interests, and an allocation that benefits one party may create additional costs for the other.

Instead, I recommend addressing the proposed allocation during the offer stage.

This allows you to review the numbers with your accountant, estimate applicable taxes, and understand the true cost of the acquisition before investing substantial time and money in due diligence.

As I explained:

"You do not wanna be sorting this stuff out two days before closing day." —David C. Barnett

Finding out that you owe an additional $30,000, $50,000, or $100,000 in tax just before closing is a situation you want to avoid.

Eight Questions to Ask Before Closing a Canadian Business Acquisition

Before finalizing an asset purchase, make sure you can answer these questions:

1. Does the transaction qualify for the GST44 election?

2. Is the purchasing corporation properly registered for GST/HST where required?

3. Has the election been prepared, and who is responsible for filing it?

4. Are there services, leases, licences, vehicles, or real estate requiring separate tax treatment?

5. Does the province impose PST, RST, or QST that must be addressed separately?

6. Which individual assets may be subject to sales tax?

7. Is the purchase price allocation reasonable and defensible?

8. Are any tax clearance certificates or additional provincial documents required?

These questions should be reviewed with professionals familiar with Canadian business acquisitions and the applicable provincial rules.

Final Thoughts: Know Your True Acquisition Cost

When buying a business in Canada, the negotiated purchase price isn't necessarily the amount of cash you'll need at closing.

The GST44 election can provide significant relief for qualifying asset purchases, but it doesn't automatically eliminate every sales tax obligation.

Provincial taxes, special asset categories, and other closing costs may still apply.

The key is to understand the complete financial picture before committing to the acquisition.

Get your accountant and lawyer involved early.

Understand the transaction structure, negotiate a defensible purchase price allocation, and confirm which elections and taxes apply.

That preparation can help you avoid unexpected expenses and keep your acquisition on track.

Learn to Buy a Business With Confidence

If you're considering buying a business in Canada, my Business Buyer Advantage program can help you understand the acquisition process, evaluate opportunities, negotiate deals, and manage financial risks.

Explore Business Buyer Advantage

If you need help building financial projections and determining the true cost of a business acquisition, explore my Cash Flow Forecasting and Business Plan Writing Program.

Explore Business Plan School

A great interview with the host GG The Franchise Guide Giuseppe Grammatico

 

Business valuation, deal-making frameworks & exit strategies — franchise consultant Giuseppe Grammatico welcomes back ALL-TIME record holder David Barnett for his 9th appearance on The Franchise Freedom Podcast to discuss his powerful new book, Business and Asset Values: How Owners, Buyers, Sellers, Lenders and Advisors Should Think About Small Business & Equipment Value. This is a masterclass in understanding what your business is REALLY worth — whether you're a buyer evaluating acquisitions, a seller planning your exit, or an aspiring franchise owner weighing your options.

Premiere - Who's going to own your small business with Michael Kerr

 

Who's going to own your small business 

New guest – Michael Kerr

I’m joined by Michael Kerr, founder of Kerr Capital and an Australian business broker and small business adviser, to explore why selling a business is far more complex than selling a house.

Tune in as we discuss business succession planning, realistic valuations, employee buyouts, community ownership, preparing a business for sale, and why key employees may be the most natural buyers.

We also examine the “silver tsunami,” the risk of vital local businesses closing, and how owners can create better exit options before time runs out.

This is a must-see event for business owners, buyers, brokers, advisers, and anyone planning a small business exit.

Join us live to ask questions. A replay will be available.

Set a reminder on YouTube:  https://youtu.be/VfNuUc4w0js 

It will be going live Thursday September 10, 2026 at 2:30 PM Atlantic Time and 1:30 PM Eastern Time

See you there!

David C Barnett

What Is Your Business Really Worth? (New Book Out Now)

**New Video Alert!

What is a business really worth? The answer isn't always one number.

My new book, Business and Asset Values, is designed for business owners, buyers, sellers, lenders, accountants, lawyers, advisors, and anyone who wants to better understand how businesses and their assets are valued.

In this video, I introduce the ideas behind the book, including fair market value, liquidation value, business valuation methods, SDE and EBITDA, cash flow, debt, working capital, goodwill, transferability, and why buyers and sellers can look at the same business and reasonably reach different conclusions about its value.

Cheers

See you over on YouTube:https://youtu.be/-1C9gmAViUQ 

David C Barnett

Would You Sell Your Business With 100% Seller Financing?

Selling a business to a trusted employee can feel like the ideal succession plan.

They already know the company, understand the customers, and may have spent years helping build the operation.

But if you finance the entire purchase yourself, you're not simply selling the business.

You're also becoming the bank.

That creates an entirely different set of risks.

Start With Your Own Financial Position

Before deciding whether to provide 100% seller financing, look at your own financial needs.

Ask yourself whether you need the sale proceeds immediately, whether you have other retirement assets, and whether you could financially survive if the buyer stopped making payments.

If your retirement depends entirely on receiving those payments, financing the full purchase price may create too much exposure.

Evaluate the Business First

The strength of the business matters just as much as the strength of the buyer.

Consider:

• Cash flow

• SDE or EBITDA

• Tangible assets

• Goodwill

• Working capital

• Overall marketability

A highly desirable business gives the seller more options.

If the company would be difficult to sell on the open market, an internal succession may become more attractive—but that doesn't eliminate the financing risk.

Evaluate the Employee Like a Banker

A long-term employee may understand the business extremely well.

That doesn't automatically mean they'll be a successful owner.

Entrepreneurship requires different skills, including financial discipline, decision-making, risk tolerance, and the ability to manage uncertainty.

Look carefully at whether the buyer has accumulated savings, demonstrated financial responsibility, and shown a willingness to invest personally in the transaction.

Where Is the Buyer's Skin in the Game?

One of the biggest concerns with 100% seller financing is that the buyer may have very little financially at risk.

A stronger transaction might include:

• A down payment

• Personal guarantees

• Additional collateral

• Home equity

• Liens against other assets

The more the buyer has at stake, the stronger their incentive may be to work through difficult periods instead of simply walking away.

Structure Matters

An asset sale and a share sale can create very different levels of risk.

If you're financing a share purchase that includes inventory, receivables, cash, and working capital, you may be financing much more than just equipment and goodwill.

An asset transaction where the buyer provides their own operating capital may reduce some of that exposure.

The important question is: exactly what are you financing?

Seller Financing Means Staying Connected

If you finance the purchase, your relationship with the business may continue for years.

You may want ongoing access to:

• Financial statements

• Bank statements

• Receivables

• Payables

• Balance sheets

• Key financial ratios

Loan covenants and reporting requirements can also help protect your position.

If your goal is to sell and completely walk away, 100% seller financing may not match that objective.

Consider a Staged Buyout

A gradual ownership transition can sometimes provide a better alternative.

Instead of transferring the entire company immediately, an employee can purchase ownership over time while assuming greater responsibility.

This gives both sides an opportunity to see whether the transition works before the seller gives up complete control.

It may also allow the employee to build equity and financial strength along the way.

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Key Takeaways

Selling a business and financing the buyer are two separate decisions. Before providing 100% seller financing, evaluate the buyer's financial strength, your own ability to absorb a default, and whether a staged transition could reduce the risk.

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