FinReady

How to Buy a Business in Ontario: The Financial Playbook

Ontario has more businesses for sale right now than at any point in the last 30 years. Baby boomers are retiring, and most don't have a succession plan. If you've ever thought about buying an existing business instead of starting from scratch, the timing is right. But the financial side is where most deals fall apart.

Step 1: Figure out what you can afford BEFORE you go shopping

This is backwards from how most people do it. They find a business they love, then try to figure out financing. Do it the other way:

• How much cash can you put down? (Expect 20-30% for acquisitions)
• Your down payment × 4 = rough maximum purchase price
• $100K down payment → look at businesses up to $400K
• $250K down payment → businesses up to $1M

Step 2: Valuation — the 3x to 5x EBITDA rule

For a typical Ontario SME, the purchase price is 3 to 5 times adjusted EBITDA. A business generating $200K in adjusted EBITDA is worth $600K to $1M. The multiple depends on the industry, customer concentration, owner dependency, recurring revenue, and growth trajectory.

If a seller quotes you 8x EBITDA for a plumbing company, walk away. If they quote 3x for a SaaS company with 90% recurring revenue, run toward it.

Step 3: The financing stack

Almost no acquisition is financed with a single source:

• Your cash: 20-30% down
• Vendor take-back (VTB): Seller finances 20-40% — this is your biggest negotiation lever
• Bank loan or BDC: The remainder
• CSBFP: For the tangible assets portion (equipment, leasehold improvements)

Step 4: Due diligence that saves your life

Hire an independent CPA. Not the seller's accountant. Your own. Have them review 3 years of financials, tax returns, HST filings, payroll records, and customer contracts. The $5,000-$10,000 you spend on due diligence can save you $500,000 in hidden liabilities.

Red flags to watch for: customer concentration (one client = more than 20% of revenue), owner dependency (does the business run without the current owner?), declining revenue trend, deferred maintenance on equipment, and pending litigation.

The 100-day rule

After closing, change nothing for 100 days. Meet every employee. Meet every major customer. Meet every supplier. Learn the business as it is before you start "improving" it. The most expensive mistakes in acquisitions happen in the first 90 days by overeager new owners.