Showing posts with label #finance. Show all posts
Showing posts with label #finance. Show all posts

Monday, April 20, 2026

BDC vs SBA: The Truth About Buying a Business in Canada

 

Can an American Buy a Business in Canada? BDC Financing, SBA Loans, and Cross-Border Tax Risks

Can an American buy a business in Canada?

Yes. But being legally able to buy a Canadian business doesn't necessarily mean the acquisition will make financial sense.

I recently received two questions from viewers.

One came from an American interested in purchasing a business in Canada. He wanted to understand whether financing would be available and whether Canada's Business Development Bank could help.

The other came from a Canadian viewer who wanted me to spend more time discussing the Business Development Bank of Canada, commonly known as BDC.

These questions fit together because financing is one of the biggest considerations when buying a business, particularly when the buyer lives in another country.

But there's another issue that I believe deserves even more attention.

Taxes.

An American buyer could potentially purchase a profitable Canadian business, arrange financing, and successfully complete the transaction, only to discover that the company's tax treatment has changed dramatically because of the new ownership structure.

That could reduce the cash flow available to service acquisition debt, reinvest in the business, and compensate the owner.

So today, I want to explain how BDC works, how it differs from the U.S. Small Business Administration (SBA), what financing options may be available to American buyers, and why cross-border taxation needs to be investigated before making an offer.


Can a U.S. Citizen Buy a Business in Canada?

The short answer is yes.

An American can generally acquire ownership of a Canadian business, subject to applicable investment, industry, regulatory, and transaction-specific requirements.

But let's establish an important distinction.

I'm not talking about an American who wants to move to Canada, become a resident, and apply for an immigration or investor program.

I'm talking about someone who:

  • Lives in the United States.

  • Wants to purchase an operating business in Canada.

  • Plans to continue living in the United States.

  • Intends to own or oversee the Canadian business from across the border.

That distinction matters because where the owner resides can affect financing, corporate tax treatment, reporting obligations, and the economics of the acquisition.

Before evaluating a specific transaction, you need to understand how Canadian business financing works.

And that brings us to BDC.

What Is the Business Development Bank of Canada?

The Business Development Bank of Canada (BDC) is a federal financial institution focused on supporting Canadian entrepreneurs and businesses.

Its role is different from that of a conventional commercial bank.

I've interacted with BDC employees for many years.

There's a significant BDC presence here in Moncton, New Brunswick, where I live.

I've also interviewed BDC representatives for members of my Business Buyer Advantage Group Coaching Program.

Those conversations have helped members better understand how BDC approaches lending decisions and evaluates potential transactions.

BDC isn't simply another version of RBC, TD, BMO, CIBC, or Scotiabank.

It's better understood as a specialized development lender.

Its financing is often intended to support business expansion, equipment purchases, modernization, ownership transitions, and other strategic projects.

BDC also offers business advisory services.

BDC Is Not a Traditional Operating Bank

A typical Canadian business needs a financial institution to handle everyday banking activities.

That might include:

  • Business chequing accounts

  • Deposits and payments

  • Operating lines of credit

  • Day-to-day cash management

BDC doesn't provide the same range of everyday banking services.

Instead, it focuses on structured financing for particular business needs.

That means a company may have an operating relationship with a conventional bank while also borrowing from BDC for a specific project.

These relationships aren't necessarily competing with one another.

They can be complementary.

How BDC Works Alongside Canadian Banks

Suppose a Canadian business has an established relationship with TD or RBC.

The company wants to purchase expensive equipment or acquire another business.

Its commercial bank may be willing to provide part of the required financing but may not want to fund the entire project.

BDC may be able to participate alongside that lender.

One arrangement that can arise is called pari passu financing.

This generally refers to lenders sharing certain security or repayment rights on an agreed proportional or equal-ranking basis, depending on the financing documents.

The important point is that multiple lenders may participate in a transaction rather than one institution providing all the money.

For Canadian entrepreneurs, this creates an additional financing avenue worth exploring.

You don't necessarily need to abandon your existing bank relationship to approach BDC.

What Makes BDC Term Loans Different?

One interesting distinction I've encountered concerns how BDC describes its term lending.

I once spoke with someone at BDC who emphasized that they provide what he called true term loans.

He explained that if a borrower is required to make a particular monthly payment and continues making those payments, the lender generally intends to maintain the loan according to its agreed terms.

This was contrasted with certain commercial lending arrangements that include demand provisions or financial covenants.

Why Loan Covenants Matter

A conventional business loan may contain requirements related to financial ratios.

For example, a lender might require the borrower to maintain a particular debt-to-equity ratio or current ratio.

If the company violates those requirements, the lender may gain contractual rights to demand repayment or take other action.

I've seen situations where businesses encountered financial difficulties, began working to correct the problems, and then discovered that a covenant violation had created additional pressure from their lender.

That's why understanding the loan agreement matters.

However, borrowers should never assume that making scheduled payments alone guarantees that a BDC loan cannot be accelerated.

The actual contract, security arrangements, representations, and default provisions govern the lender's rights.

The practical lesson is to review the financing terms, not just the interest rate and monthly payment.

What Types of Business Financing Does BDC Offer?

BDC provides several categories of financing that may be relevant to Canadian businesses.

The following areas reflect the types of financing discussed in my video, based on BDC's public offerings around spring 2026.

Specific programs, maximum amounts, eligibility requirements, and terms can change, so applicants should confirm the current details directly with BDC.

1. Working Capital Financing

BDC offers financing intended to help businesses fund certain operating and growth needs.

For example, a company might need additional resources to expand its inventory, increase capacity, hire employees, or enter a new market.

This is different from simply requesting an increase to a revolving operating line of credit.

BDC may provide a structured term loan for an eligible project.

2. Equipment Financing

Equipment financing is particularly relevant to businesses that depend on machinery, vehicles, or other expensive assets.

One interesting feature discussed in the video is BDC's advertised ability, under certain offerings, to finance up to 125% of eligible equipment costs.

Why would a lender finance more than the equipment's purchase price?

Because buying equipment often involves additional expenses.

These may include transportation, installation, setup, and related costs required to make the equipment operational.

Financing these expenses can help businesses complete the project without using as much of their available cash.

The 125% figure should not be treated as a universal entitlement; availability depends on the applicable program and approval.

3. Technology and Modernization Financing

BDC also supports investments intended to improve business productivity and competitiveness.

These may involve technology upgrades, digital systems, cybersecurity, automation, and other modernization initiatives.

The purpose isn't necessarily to purchase a physical asset.

It's to help the company become more efficient or capable.

4. Business Acquisition and Ownership Transition Financing

BDC may also participate in financing ownership changes.

These can include purchasing an existing company, buying out a business partner, transferring ownership within a family, or acquiring another company as part of an expansion strategy.

This makes BDC particularly relevant to business buyers.

But financing availability still depends on the buyer, target business, proposed structure, and lender's assessment.

5. Startup Financing

BDC has also advertised financing options for qualifying startup businesses.

In the video, I discuss startup financing of up to $150,000 under the offering available at that time.

That doesn't mean BDC will necessarily provide every dollar required to launch a company.

The applicant may still need to contribute equity and demonstrate an acceptable financial structure.

I've helped people obtain startup financing, and the relationship between debt and owner-contributed capital remains an important consideration.

6. Targeted Entrepreneurship Programs

BDC also offers initiatives intended to support particular entrepreneurial groups and strategic priorities.

These have included support for Indigenous entrepreneurs, inclusive entrepreneurship, technology adoption, and business modernization.

The specific programs and eligibility criteria should always be checked before applying.

What Does BDC Look for When Financing a Business?

Unlike the SBA, BDC doesn't publish one comprehensive public underwriting manual that explains every lending decision.

Instead, it provides broader information about the businesses and projects it wants to support.

In general, a lender like BDC will want to understand:

  • Whether the business is genuinely operating in Canada.

  • The purpose of the requested financing.

  • The company's financial history or credible plan to profitability.

  • The borrower's financial position and creditworthiness.

  • The experience and capabilities of management.

  • The proposed capital structure.

  • The business's ability to repay the loan.

  • The risks associated with the transaction.

A profitable business with a strong borrower may be treated differently from a similar company with a financially weaker buyer.

That can explain why seemingly comparable transactions receive different lending decisions.

I've seen BDC finance deals that surprised me.

And I've also seen transactions that appeared promising get rejected.

The lender evaluates more than the business itself.

It evaluates the entire financing situation.

Is BDC the Canadian Equivalent of the SBA?

This is one of the most important distinctions in the discussion.

BDC and the SBA both support small-business financing, but they operate differently.

BDC is a direct lender.

The SBA, particularly through its popular 7(a) loan program, primarily provides guarantees to participating lenders.

That structural difference affects how financing decisions are made and how borrowers access the programs.

FeatureBDC — CanadaSBA 7(a) — United States
Primary roleDevelopment lenderGovernment loan-guarantee program
Who generally makes the loan?BDCParticipating lender
Who evaluates the borrower?BDCParticipating lender under applicable SBA requirements
Public underwriting informationBroad product and eligibility guidanceDetailed public program rules and lender procedures
Typical purposeCanadian business growth, modernization, acquisition, and other eligible projectsEligible U.S. small-business financing needs
Can other lenders participate?Yes, depending on structureYes, within applicable program rules

Why the SBA Has More Publicly Available Rules

The SBA establishes program requirements that participating lenders must follow to obtain its guarantee.

Those rules are published through formal procedures and guidance.

BDC makes its own lending decisions.

It doesn't operate through the same public lender-guarantee framework.

As a result, you shouldn't expect to find a one-for-one Canadian equivalent of the SBA's published lending procedures.

BDC's internal underwriting considerations can vary according to the borrower, industry, business, and proposed transaction.

So while both institutions help support entrepreneurship, they're not interchangeable.

Can an American Use an SBA Loan to Buy a Canadian Business?

Generally, you shouldn't expect to use an SBA 7(a) loan to acquire a business that will remain an operating Canadian company.

SBA programs are designed around eligible U.S. businesses and program requirements.

There are circumstances involving international assets or business relocations that require more careful analysis.

For example, I once helped an American obtain SBA financing to purchase a software-as-a-service business located in the United Kingdom.

But there was an important difference.

The business was being moved to the United States.

It was an online company that could operate from different locations.

The transaction was structured around establishing the business in the U.S.

That is very different from purchasing a company that will continue operating in Canada.

Could SBA Financing Play an Indirect Role?

Possibly, depending on the circumstances.

Suppose an American already owns an eligible operating business in the United States.

There may be financing or refinancing arrangements involving that American business that could free up capital for other purposes.

But those possibilities depend on applicable SBA restrictions, lender approval, permitted uses of proceeds, and the actual structure.

You cannot simply assume SBA loan proceeds may be redirected to a foreign acquisition.

For a Canadian business purchase, buyers should primarily investigate the Canadian financing market and other lawful sources of capital.

Financing Options for Americans Buying Canadian Businesses

An American considering a Canadian acquisition may need to investigate several possibilities.

These include Canadian commercial banks, BDC, private lenders, seller financing, and available investor capital.

Each option presents different considerations.

Canadian Commercial Banks

A conventional lender may consider the transaction, but a non-resident buyer can create additional underwriting complexity.

The bank may examine the buyer's Canadian operating structure, management arrangements, available security, and repayment capacity.

BDC Financing

BDC may be relevant because it finances eligible Canadian business acquisitions and ownership transitions.

However, that doesn't mean every American buyer or foreign-controlled transaction will qualify.

Eligibility needs to be confirmed directly.

Seller Financing

The seller may agree to receive part of the purchase price over time.

This can reduce the amount of financing required at closing.

But it introduces its own negotiation, security, and repayment considerations.

Private Financing or Investors

Private lenders or investors may provide capital in some transactions.

However, the cost of capital, ownership implications, and repayment terms need careful examination.

The main point is that financing a Canadian acquisition requires an appropriate Canadian or cross-border structure.

And before you spend too much time arranging financing, you need to investigate what the ownership change will do to the company's taxes.

The Tax Problem American Buyers Often Overlook

This is where the discussion becomes especially important.

When people analyze a business acquisition, they frequently focus on EBITDA or seller's discretionary earnings.

Those figures can help describe business performance.

But neither represents the amount of money an owner can automatically take home.

You still need to consider debt payments, capital expenditures, working capital, and taxes.

I've seen buyers commit too much of a company's apparent cash flow to acquisition debt.

Then, when we examine the actual tax obligations and reinvestment requirements, the transaction no longer looks financially viable.

Taxes aren't a minor administrative detail.

They're part of the economics of the acquisition.

And for a cross-border buyer, they can become much more complicated.

Understanding Canada's Small Business Deduction

Many qualifying Canadian-controlled private corporations benefit from Canada's small business deduction.

This provides a reduced corporate income tax rate on eligible active business income, subject to the applicable business limit and other rules.

The federal business limit is generally $500,000, although eligibility and the available limit can be affected by factors such as associated corporations, taxable capital, passive investment income, and provincial rules.

A company doesn't automatically qualify simply because its profit is below $500,000.

Its ownership and tax status matter.

What Is a Canadian-Controlled Private Corporation?

A Canadian-controlled private corporation, or CCPC, is a private corporation that meets specific requirements under Canadian tax law.

One important consideration is whether the company is controlled by non-residents.

A corporation controlled by an American living in the United States may cease to qualify as a CCPC.

And that can affect access to the small business deduction.

This is one of the biggest tax issues an American buyer needs to investigate.

Example: How Foreign Ownership Could Change Corporate Taxes in New Brunswick

Let's use New Brunswick as an example.

That's where my company is incorporated.

In the video, I discuss a combined federal and provincial small-business corporate tax rate of 11.5% for qualifying income.

I also compare that with a general combined corporate rate of approximately 29%.

The difference is substantial.

For illustration, assume a corporation has $300,000 in taxable income that would otherwise qualify for the lower rate.

Illustrative corporate tax calculationQualifying small-business rateGeneral corporate rate
Taxable corporate income$300,000$300,000
Assumed tax rate11.5%29%
Estimated corporate income tax$34,500$87,000
Income remaining after corporate tax$265,500$213,000

<text>Difference in this simplified example: $52,500 annually.</text>

These are illustrative calculations using the rates discussed in the transcript, not a determination of tax liability for a specific company. Actual rates, eligibility, taxable income, and other tax consequences must be confirmed for the relevant year and transaction.

But the example demonstrates the concern.

A business might be profitable under Canadian-resident ownership and have significantly different after-tax economics following a change to foreign control.

That change could affect how much money remains available for debt repayment, equipment purchases, and the owner's financial return.

Why Losing CCPC Status Can Affect the Entire Acquisition

Imagine an American buyer purchases a profitable Canadian corporation.

Before the sale, the business qualifies for the small business deduction.

After the sale, the ownership structure causes the corporation to lose CCPC status.

The company may then face the general corporate tax rate on income that previously qualified for the lower rate.

This doesn't necessarily mean the acquisition becomes impossible.

But it means the buyer needs to revise the financial model.

The original seller's after-tax results may no longer represent the buyer's expected financial position.

And if the acquisition financing was based on overly optimistic cash flow assumptions, the change could become a serious problem.

Debt Service, Taxes, and Capital Expenditures

I often tell business buyers that I don't like to see them commit more than approximately 50% of EBITDA to debt service as an initial rule of thumb.

That's not a universal lending rule or a guarantee of affordability.

It's a way of encouraging buyers to leave room for other financial obligations.

Consider a simplified example.

A business generates $100,000 in EBITDA.

The buyer expects to make $50,000 in annual debt payments.

At first glance, that leaves $50,000.

But the company may still need to pay corporate income tax.

It may need to replace equipment.

It may require additional working capital.

And the owner may need compensation.

Suddenly, the remaining cash may be insufficient.

Now imagine that the business also loses access to a reduced corporate tax rate because of the ownership change.

The financing structure could become even less attractive.

This is why buyers need a complete cash flow analysis.

Don't confuse EBITDA with money available for personal spending.

How Canada's Integrated Tax System Works

Canada's corporate and personal tax systems are designed to provide a degree of integration between corporate earnings and shareholder taxation.

A business owner may receive compensation through salary or dividends, subject to the relevant tax rules.

Salary paid by a corporation is generally deductible when properly incurred, reducing corporate taxable income.

Dividends are generally paid from after-tax corporate earnings and receive particular tax treatment in the hands of Canadian-resident individuals.

The integration system is intended to reduce major differences in the combined tax burden under different compensation approaches, although the actual results can vary.

But here's the important issue for an American buyer.

The tax treatment available to a Canadian-resident shareholder doesn't necessarily apply in the same way to a non-resident shareholder.

Cross-border dividends, withholding taxes, foreign tax credits, and U.S. reporting obligations may all become relevant.

So the buyer cannot simply assume that the Canadian seller's personal tax experience will continue after the acquisition.

U.S. Tax Obligations When Owning a Canadian Corporation

The Canadian tax consequences are only part of the problem.

An American who owns a foreign corporation may also face U.S. tax and reporting requirements.

The United States generally taxes U.S. citizens and resident taxpayers on worldwide income, subject to applicable rules.

Ownership of a Canadian corporation can create additional reporting obligations.

Depending on the ownership percentage, structure, income, and other circumstances, these may involve foreign corporation reporting and specialized international tax rules.

For example, certain owners may need to address Form 5471 and rules relating to controlled foreign corporations.

Other requirements may apply depending on the structure.

The specific obligations need to be determined by a qualified U.S. cross-border tax professional.

Why Cross-Border Tax Compliance Can Become Expensive

Imagine someone who has a relatively straightforward personal tax return in the United States.

They may be accustomed to paying a tax preparer a modest annual fee.

Now they purchase a Canadian corporation.

Suddenly, they may need professional assistance with Canadian corporate taxation, U.S. foreign corporation reporting, ownership disclosures, treaty considerations, and cross-border distributions.

In the video, I discuss how professional compliance costs in a complicated situation could potentially reach $10,000 to $12,000 annually.

That's an illustrative possibility, not a standard fee or prediction for every transaction.

But it demonstrates why compliance expenses need to be considered before closing.

A business that looks attractive based on its reported cash flow may be much less appealing after accounting for the additional cost and complexity.

Should Americans Buy Canadian Businesses at All?

I'm not suggesting that Americans should avoid Canadian acquisitions.

Cross-border business ownership is possible.

And for some buyers, it may be commercially attractive.

A larger American company expanding into Canada may already have financial and accounting teams capable of managing the additional requirements.

It may have a strategic reason to enter the Canadian market.

It may also be able to absorb the cost of international compliance across a much larger operation.

But that's different from an individual American making a one-off acquisition.

Someone buying a single small business may discover that the professional fees, financing complexity, and tax consequences consume a significant portion of the expected financial benefit.

The correct answer depends on the particular transaction.

And that's why the analysis needs to happen before the buyer becomes committed.

What to Investigate Before Making an Offer on a Canadian Business

If you're an American considering purchasing a Canadian company, I'd recommend investigating several issues before submitting a letter of intent.

1. Confirm the Ownership Structure

Determine whether you're considering an asset purchase, share purchase, or another structure.

Different arrangements can produce different legal and tax outcomes.

2. Examine the Company's Existing Tax Status

Does the business currently qualify as a CCPC?

Does it benefit from the small business deduction?

Would the proposed ownership structure change that status?

3. Calculate the Expected Corporate Tax Burden

Don't rely exclusively on the seller's historical tax rate.

Model the company's expected tax position after the acquisition.

4. Understand the U.S. Reporting Requirements

Find out which American tax rules, disclosures, and reporting obligations may apply.

Estimate the ongoing professional costs.

5. Investigate Canadian Financing

Speak with appropriate Canadian commercial lenders and, where relevant, BDC.

Determine whether the proposed buyer and acquisition structure are eligible.

6. Evaluate Seller Financing and Other Structures

If conventional lending isn't sufficient, consider whether the seller or other capital sources could participate.

But make sure the structure is commercially and legally appropriate.

7. Recalculate Available Cash Flow

After considering taxes, debt service, working capital, capital expenditures, and owner compensation, does the transaction still make sense?

8. Get Professional Cross-Border Advice

Work with qualified Canadian and U.S. tax advisers who understand business acquisitions.

The goal is to identify problems before they become expensive.

Why Tax Planning Must Happen Before the Letter of Intent

One mistake I see buyers make is treating tax planning as something to address near closing.

They negotiate a purchase price.

They submit an offer.

They begin due diligence.

Then they ask their accountant how the acquisition should be structured.

That sequence can create problems.

By the time they receive professional advice, they may have already committed to terms that are difficult to change.

As I emphasize when discussing cross-border acquisitions:

"you need to get all of this stuff sorted out before you submit a letter of intent and especially before the deal closes." —David C. Barnett

The ownership structure, financing, and tax consequences can all affect what the business is worth to the buyer.

They should influence the offer itself.

Why BDC Matters to Canadian Entrepreneurs

Although much of this discussion focuses on Americans buying Canadian businesses, I also want to emphasize the importance of BDC for Canadian entrepreneurs.

If you're already operating a business in Canada, BDC may be worth investigating when you're considering expansion, modernization, equipment purchases, or an ownership transition.

As I explained earlier, BDC isn't simply a replacement for your commercial bank.

It's a specialized lender that may support particular projects.

Its publicly advertised financing priorities can help you understand what kinds of proposals it may be interested in reviewing.

But approval isn't automatic.

The lender will still evaluate the business, borrower, project, and repayment capacity.

For buyers, understanding BDC adds another potential financing option to the conversation.

Final Thoughts: A Cross-Border Business Acquisition Must Make Financial Sense

Can an American buy a business in Canada?

Yes.

But the more important question is whether the acquisition will remain financially attractive after accounting for financing, taxes, and compliance obligations.

BDC can play an important role in Canadian business financing.

But it isn't structured like the SBA.

The SBA generally guarantees eligible loans made by participating American lenders.

BDC makes lending decisions directly and focuses on supporting Canadian business activity.

For an American buyer, the financing conversation may involve Canadian commercial banks, BDC, seller financing, or other sources of capital.

And the tax conversation can be even more important.

Foreign ownership may change a Canadian corporation's CCPC status and its access to the small business deduction.

The American owner may also face additional U.S. reporting and tax obligations.

These consequences can materially change the economics of the transaction.

As I explain:

"just because you can get something done and just because you can get it approved doesn't necessarily mean you should do it." —David C. Barnett

That's the lesson I want buyers to remember.

The ability to finance and close an acquisition doesn't automatically make it a good investment.

You need to understand what you're buying, how it will be financed, how it will be taxed, and how much cash flow will actually remain.

And you need to investigate those questions before making a financial commitment.

Get Help Evaluating a Business Acquisition in Canada or the United States

If you're serious about buying an existing business, my Business Buyer Advantage program provides training, group coaching, and consulting services designed to help you understand the acquisition process and manage risk.

The program covers business valuation, financial analysis, due diligence, financing, negotiation, and transaction structure.

Explore Business Buyer Advantage Online Training and Group Coaching

If you've already identified a business you're considering purchasing, my Buyer Insight Analysis consulting service can help you examine the opportunity, identify potential red flags, evaluate the financial information, and prepare an informed opening offer.

Learn More About Buyer Insight Analysis Consulting

For more information about business valuation and how buyers, sellers, and lenders should think about business and equipment value, explore my book Business and Asset Values.

Explore Business and Asset Values

You can also learn more about my books, videos, and other educational resources on my website.

Visit DavidCBarnett.com

👉 Want deeper dives like this? Join my email list at DavidCBarnettList.com for early access to videos, insights, and 7 free bonus gifts.

Saturday, June 8, 2024

So If You Want to Buy a Business – Here’s What You Should Do Next

Today, I've got a question from a viewer and his name is Vincent, who's 27 years old at that time. He wants to buy a business from one of these baby boomers that he keeps hearing about who are going to have to start thinking about retiring one day. Now he wants to know what he needs to do today in order to buy one of these businesses.


I'm going to give Vincent and many of you out there who are in the same situation some advice on what you can do today. Some of it is going to be pretty glamorous and exciting advice, and some of it is going to sound pretty boring. But it's the boring stuff that you really need to focus your attention on. Watch the full video here: https://youtu.be/SAIiek5ZQz4 


Start Saving Money

The number one thing you have to do as a 27-year-old to buy a business from a baby boomer is start living below your means and save money. Yes, I know. It's pretty boring. But you need to save money because you're likely going to have to put some kind of cash down in a deal, or at least have cash available to pay people like lawyers, accountants, and other specialists who are going to help you finalize your deal and close it. Largely, that kind of money comes from savings. If you need to borrow money and others see that you have no savings, they'll wonder if you can't manage your own life, how will you manage a business? 

Develop Your Credit

Number two, start developing your credit. Get a credit card and use it responsibly. Put a little balance on it and pay it off, and repeat. This will help your credit score rise and qualify you for larger credit facilities. These may be personal facilities, but you may need to draw on them in the future for a deal. Start saving money, and start developing your credit score to get it high and develop credit facilities. Going into a bank, asking for a line of credit, buying a house, getting a mortgage—these actions will help improve your credit and net worth, making you look better on paper.

Choose the Right Industry

Now, let's think about the business you want to buy. Some industries are dominated by big players, while others have fractured ownership with lots of independent family-owned businesses. For example, the pipeline industry is controlled by a few giant companies, while auto repair has many small, family-owned businesses. You need to look at your skill set and interests and decide what kind of industry you would like to be in. Align that interest with an industry that has lots of independent owners because these are the people likely to sell their business to you. Put yourself into a field with rich opportunities where you'll have plenty to choose from. You don't want to have to buy a specific business just because it's the only independent one around.

Gain Industry Experience

Next, start working in that industry. Even if you're not a business owner, look for a job in that industry to develop industry-specific skills and knowledge. This is crucial because when it's time to buy a business, bankers will want to know that you have experience in that industry. If you can get a job as an assistant manager or manager, even better. You'll be able to show direct experience in managing that kind of business.

Take an Online Course

Consider signing up for my online course, Business Buyer Advantage. It's easy, cheap, and will teach you what to look for in a business, how to properly examine financial statements, do a normalization, and figure out roughly what a business is worth. When it comes time to make the purchase, you can give me a call, and I'll help you out.

Build Relationships with Suppliers

Lastly, and this is one that not many people will talk about, once you're working in that industry, start to meet and develop relationships with the suppliers in that industry. Even if your job isn't in purchasing, find out who the sales reps are or which businesses your employer buys from. Create relationships with those people. When a younger person buys a business, they often have difficulty with financing and putting the deal together. Suppliers can help you if they choose to. They help people they like, have confidence in, and believe in. For example, in an auto repair business, if you can build a relationship with a parts supplier, you could ask for help with a loan or extended terms when buying a business. These relationships can have a huge impact on your operating capital.

Conclusion

It's not very likely that you'll go out as a 27-year-old and buy a business from a baby boomer immediately, but here's the good news. All those statistics about baby boomers selling their businesses and the huge transfer of wealth are based on the faulty assumption that people retire at 65. 


In small business ownership, people often stay on longer. So, you'll have plenty of opportunities over the next 10 to 15 years. It's better to bide your time, get prepared, and be in a solid position to make a good deal rather than jump at an opportunity when you're not ready. You need stability as business can be risky.


Cheers!

David C. Barnett


 

Wednesday, May 8, 2024

 


***New Video Alert!

What are finance strategies?

What is profit?

Why would a small business want to maximize it?

Not all do.

This week, a deep dive into the three groups of businesses, what performance metric they’re trying to maximize and what kinds of strategies will deliver the goods.

Learn more by watching this week’s video: https://youtu.be/d9UlF3zJ9V0 


Cheers


See you over on YouTube

David C Barnett