Due diligence on a BC business purchase means checking five things before you remove conditions: the financials, the legal structure, the lease or real estate, the people, and the operations. Below is the 30-point checklist our team works through with buyers, from the first look at the numbers to the day you get the keys. Use it with your accountant and lawyer, not instead of them.
Before you start: asset purchase or share purchase
Most small and mid-size business sales in BC are structured one of two ways. In an asset purchase you buy the equipment, inventory, goodwill and contracts, and leave the seller's company and its history behind. In a share purchase you buy the company itself, including its past obligations. Sellers often prefer shares for tax reasons; buyers often prefer assets for protection. The structure changes which of the checks below matter most, the taxes on closing and what your lawyer needs to see, so settle it early with your accountant and lawyer.
Financial checks
- Three years of financial statements, ideally prepared or reviewed by an accountant, plus the current year to date.
- Tax returns that match the statements. If the books show more profit than the returns, ask why before you rely on either.
- Monthly sales records from the point-of-sale system, bank deposits and merchant statements, so you can see seasonality and trends.
- Adjusted earnings. Rebuild the owner's true earnings: add back the owner's own wage and one-time costs, and subtract anything the business will need that the owner did for free.
- Accounts payable and receivable, with any overdue amounts and who is responsible for them at closing.
- Inventory count and valuation, done close to closing, with a clear rule for how it adjusts the price.
- GST, PST and payroll remittances up to date, with no amounts owing to the CRA or the Province that could follow the business.
Legal and corporate checks
- Corporate records (for a share purchase): who owns the shares, directors, minute book and any shareholder agreements.
- Liens and security registrations. Your lawyer searches the Personal Property Registry for lenders or suppliers with security over the assets.
- Litigation and claims, current or threatened, including customer complaints and disputes with former staff.
- Licences and permits: municipal business licence, health permits, liquor or other regulated licences, and whether each one can transfer to you or must be reapplied for.
- Key contracts: supplier, franchise, distribution and service agreements, and whether they need consent to assign.
- Intellectual property: business name, website, phone numbers, social accounts and any trademarks, all transferred in writing.
Lease and real estate checks
For many businesses, the location is most of the value. A great business on a lease that ends next year is a very different purchase from the same business with ten years of term.
- The full lease, with every amendment, renewal and side letter.
- Term and renewal options. How many years remain, and on what terms can you renew?
- Assignment clause and landlord consent. Most leases require the landlord's approval to assign. Start that conversation early, because it often sets the closing date.
- Rent and additional rent: base rent, operating costs, property tax share and any scheduled increases.
- Personal guarantees and deposits. Landlords often ask a new owner for a guarantee. Know what you are signing.
- Use clause and exclusives. Make sure the lease allows how you plan to run the business, and check whether a competitor could move in next door.
- Condition of the premises and who pays for repairs to the roof, heating and cooling, and other building systems.
- Buy instead of lease. If the building itself is for sale, owning it can protect the business from rent increases and a lost lease. Business owners who buy the building they operate from may qualify for owner-occupied commercial financing, and the commercial bankers we work with can structure financing up to 100% for qualified buyers.
People checks
- Staff list with roles, wages, start dates, vacation owed and any written contracts.
- Key person risk. If the business depends on the owner or one manager, agree on a training and handover period in the contract.
- Employment obligations. In BC, staff who stay on after a sale generally keep their length of service. Your lawyer will explain what that means for future notice or severance.
- WorkSafeBC account in good standing. A clearance letter confirms there is no outstanding amount owing.
Operations checks
- Equipment list with age, condition, and which items are owned outright or leased.
- Customer concentration. If one or two customers make up a large share of sales, find out how secure those relationships are.
- Suppliers and pricing, including any special terms that might not continue for a new owner.
- Online reputation and reviews, which customers will read before they ever meet you.
- Non-compete from the seller, reasonable in time and area, so the goodwill you pay for stays with the business.
Red flags worth slowing down for
Not every issue ends a deal, but some deserve a closer look before you go further:
- Sales the seller describes but cannot show in bank deposits or tax returns.
- A lease with little time left and no renewal option, or a landlord who has not been asked about consent.
- Equipment that is leased or financed when the listing implied it was owned.
- One customer, supplier or employee the whole business depends on, with nothing in writing.
- A seller who wants conditions removed quickly, or will not allow you to speak with the landlord or key staff before closing.
When one of these comes up, the answer is usually more information, a price adjustment or a specific term in the contract, not necessarily walking away.
How long due diligence takes
For a small business, plan on a few weeks from accepted offer to removing conditions, and longer when landlord consent, a licence transfer or financing approval is involved. Your offer should give you enough time to complete the checklist. A rushed condition date is one of the most common reasons buyers end up removing subjects before they are ready.
How our team helps buyers
We coordinate accounting, legal, financing and landlord negotiation from first offer to closing, so the pieces move together instead of one at a time. If you are still looking, browse businesses for sale in BC or register as a buyer on our business acquisition page and tell us what you want to own. If the right purchase includes the real estate, our commercial real estate team in Surrey can help you assess the building as well as the business.
Frequently asked questions
What should I check before buying a business in BC?
Check three years of financial statements and tax returns, liens and corporate records, licences, the lease and landlord consent, staff obligations, equipment and customer concentration. Do it with your accountant and lawyer before you remove conditions.
Is it better to buy assets or shares?
Asset purchases leave the seller's company and its past obligations behind, which protects the buyer. Share purchases can suit the seller's tax planning. The right answer depends on the business, so decide with your accountant and lawyer.
Do I need the landlord's approval to buy a business?
Usually, yes. Most commercial leases require the landlord's consent to assign the lease, and the landlord may ask the new owner for a personal guarantee. Start that conversation early.
Can I get financing to buy the building with the business?
Business owners who buy the building they operate from may qualify for owner-occupied commercial financing. The commercial bankers we work with can structure financing up to 100% for qualified buyers.
How long does due diligence take?
For a small business, plan on a few weeks from accepted offer to removing conditions, and longer when landlord consent, a licence transfer or financing approval is needed.