Selling a bakery in Canada

A good bakery has regulars who come in for the same loaf every week, and often a few cafes or grocers who order every morning. Buyers will want to know that those sales are real, that the recipes and bakers will carry on without you, and that the kitchen, the permit and the lease let the ovens keep running. Here is what to expect and how to prepare.

What buyers look at first

Most buyers of a bakery ask the same questions early. Have clear answers ready before you list:

• Sales and profit. Two or three years of numbers, split between counter sales, wholesale accounts, custom cakes and catering, and any coffee or cafe seating.
• Costs. Ingredients, packaging and labour as a share of sales, and how they changed when flour, butter or wages went up.
• The bakers. Who mixes, shapes and bakes, who works the early shift, and whether they plan to stay.
• Wholesale accounts. Who orders, how much, how often, and on what terms.
• The kitchen. Ovens, mixers, proofers and coolers, their age and condition, and what is leased.
• The space. The lease, the venting and the health permit.
• Your time. How many hours you bake or run the counter yourself, and who covers for you.

Buyers will check these during due diligence, so it helps to gather them now. Our list of documents needed to sell a business is a good start.

Proving retail and wholesale sales

Ring every counter sale through your point of sale and deposit everything, including cash, to the business bank account. Invoice every wholesale order. Make sure the totals match your bank deposits, your sales tax returns and your tax returns. If you cannot show a sale on paper, most buyers will not pay for it.

Point of sale reports by product and by day help a buyer see what sells and when. Waste and day old sales matter too, because they show how well production matches demand. If you bake full time yourself, list your wage and any personal costs run through the business as add-backs with proof, and be honest about what it would cost to hire a baker to replace you. See making your business run without you.

Recipes and the people who bake them

Your recipes, your name and your reputation are a large part of the goodwill a buyer pays for. Write recipes down with weights, methods, timings and suppliers so a trained baker can make them the same way. Keep them private until a buyer has signed a confidentiality agreement, and list them in the purchase agreement as part of what is sold.

If one baker holds the know how, a buyer will want that person to stay through the handover. In British Columbia, section 97 of the Employment Standards Act says that when a business is sold, the employment of an employee is deemed continuous with the new owner. Talk to your lawyer about how staff move over, and read what to tell employees when selling before you share the news.

Wholesale accounts and custom orders

Steady orders from cafes, restaurants and grocers can be worth a lot, but a customer can usually switch bakeries at any time. Gather any written supply agreements and check whether they can be assigned to a buyer. Where there is no agreement, show a few years of orders by customer and how much of your sales the largest account makes up. Read telling customers and suppliers when you sell before you speak to them.

Count every deposit paid for future cake and catering orders, and every gift card still out. These are orders the buyer will fill without being paid again, so they are usually dealt with as an adjustment at closing. See working capital when selling.

The health permit and the kitchen

In British Columbia, the Food Premises Regulation says a permit to operate a food service establishment is not transferable. The buyer applies to the regional health authority, such as Island Health, Interior Health, Fraser Health, Vancouver Coastal Health or Northern Health, for their own permit before taking over. Ask your health authority early what they need from a new owner, and keep recent inspection reports and your food safety plan ready to show.

If you ship baked goods to other provinces, you may also need a federal licence under the Safe Food for Canadians Regulations. Check with the Canadian Food Inspection Agency how a new owner gets one. For the wider picture, see transferring contracts and licences.

Ovens, equipment and the lease

Ovens, mixers, sheeters, proofers, coolers and display cases are expensive to replace, so list each one with its age, condition and service history, and note anything leased or financed. Count flour, butter, packaging and other stock at closing, and see selling a business with inventory.

A bakery needs venting, gas or power for the ovens, floor drains and often a grease trap. These are hard to set up somewhere new, so the lease matters a great deal. Check how many years are left, whether the landlord must consent to an assignment and whether the use clause allows baking. See the commercial lease when selling.

GST/HST and PST

Day to day, the CRA treats bread and unsweetened bread products such as bagels and plain croissants as zero-rated basic groceries. Sweet goods such as muffins, cookies, cakes and doughnuts are generally taxable when sold in fewer than six single servings, and zero-rated when sold in sixes or more. Food eaten in a cafe area can be taxable too. A buyer and their accountant will check that your till is set up this way, because errors can mean tax owing.

When you sell the bakery itself in an asset sale, GST/HST can often be removed with the section 167 election on Form GST44 when a registered buyer acquires all or substantially all of what is needed to run the business. In British Columbia, PST generally applies to taxable equipment such as ovens, mixers and display cases, but not to goodwill. See taxes when selling a business.

A worked example

Questions to take to your lawyer and accountant

• Should this be an asset sale or a share sale?
• How do my bakers and counter staff move to the buyer?
• Can my wholesale agreements be assigned, and do I need consent?
• How should recipes, the name and social media accounts be listed in the agreement?
• What will the buyer need from the health authority, and how long does it take?
• Will the landlord consent to the assignment, and will I stay liable after it?
• Is my till charging GST/HST correctly on sweet goods and cafe sales?
• Can we use the section 167 election, and how does PST apply to the equipment?

For more, read what your lawyer and accountant do. Running a cafe or restaurant instead? See selling a coffee shop or selling a restaurant in Canada. This guide is general information, not legal or tax advice for your situation. Questions about listing with us go to hello@sellmybusinessdirect.com.