This article are provided for information purposes only, and are not intended as legal advice.


HST – will that affect the value of your business?

June 9th, 2010

In Ontario and British Columbia, HST will be implemented effective July 1.  Many different products will be more expensive now that they were in June prior to the implementation of the HST.  Will that affect the value of your business for sale?

 

The implementation of HST may cause your sales to decline because consumers have less money to spend on buying merchandise.  If they spend less, will sales drop, if sales drop will profit drop, if profit drops will the value of your business decline.

 

Many investors look at historical earnings of the business.  If you have a year end which is prior to the implementation of the HST, will the buyer notice that revenue dropped due to the implementation of HST?  If you are a seller, do you disclose that sales dropped?  Is the drop permanent or temporary?

 

These are factors which you must consider.  If you believe that the implementation of HST will affect profitability, do you as an investor offer a lower price for the business?  If you buy the business in the summer, you will not have enough data to see the impact of HST.  If you wait, you may be able to determine whether sales and profitability have been affected.

 

If you know that sales could be affected, do you defer the closing date of the buying of the business for a few months or put in a price adjustment claw back in case sales drop as a result of the HST.

 

Buyer beware, could you buy a business and then have sales drop immediately after you bought it?


Filed under: Buying a business — Gary Landa @ 1:24 pm


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