As a budding entrepreneur, you know how difficult it is to start a business from scratch these days. A growing number of start-ups are therefore considering doing business with an already existing company. This (usually) requires an investment, but has a completely different risk profile. And there is cash flow from day one.
Buying a business in Europe? Tips to negotiate the best price for a healthy business
Between dream and reality lie numerous practical obstacles. You not only have to contend with established competition, but also build a customer base. That process involves trial and error. Well-run businesses that want to grow also hit the limits of their capabilities sooner or later. Therefore, buying a business for sale in Europe is interesting for both start-ups and already existing companies.
But what should you pay attention to when buying a business? What are the financial, tax and legal hurdles to overcome? With these tips, you will be best armed to take over a business with intelligence and peace of mind.
Why buy a business?
Needless to say, buying a business is less risky than setting up your own. Especially when it comes to a well-organised, profitable business at the right price. These are some more undeniable advantages:
- The tricky start-up phase is behind you, so you don’t have to hassle with the numerous formalities involved in setting up a company.
- You can start generating revenue immediately and there is immediate cash flow.
- You get existing customers, contacts, suppliers, goodwill, skilled staff, equipment and stock on a silver platter.
- There is already an established market for your goods or services.
- Current employees have the necessary expertise they can share with you.
For existing companies, acquiring a business is particularly interesting because of economies of scale. Think of interesting discounts with suppliers, ready-made new customer base, logistical advantages, cost efficiency, and so on.
Tips for a successful business acquisition
Buying or acquiring a business is not something you do every day. It is a time-consuming and complex process with numerous financial, tax and legal pitfalls. Fortunately, there are some tips to make sure you not only pay the right price, but more importantly, make sure you buy a healthy European business.
The success of a lot of businesses depends on the person of the owner. If that trusted person disappears, customers tend to drop out as well. Therefore, always try to take over a business that does not depend so much on the owner as a person, but rather a business that is a brand in its own right. In other words, a business that customers come to because of its good name and not because of the owner’s person.
Before negotiating the final sale price, it is always useful to have an approximate idea of the business value. There are various business valuation methods, such as intrinsic value, profitability value or market-based business valuation (multiples).
As a buyer, you should keep in mind that a seller will always try to trump you with the most advantageous and highest valuation for him/her. However, this valuation does not always correspond to reality, quite the contrary.
Such a valuation naturally stands or falls with the reliability and veracity of the underlying figures. Is what you see also what you get? Due diligence is the investigation and confirmation that you are buying what you think you are buying, without proverbial skeletons coming out of the closet afterwards.
During due diligence, it is important to gather as much information as possible about the company necessary to make an informed decision. This does not just involve the accounts, but also issues such as goodwill, reputation, legal disputes, licences and so on.
You obviously don’t want to buy a business that is embroiled in a tangle of legal proceedings. After all, you as the new owner take over these liabilities. But there are other things to watch out for. Does the business for sale have tax or social debts?
Make sure you buy a business in which you can really start with a clean slate, without having to pay for historical debts of your predecessor. Also build in the necessary indemnity clauses so that you can always turn to the previous owner in case of unpleasant surprises.
In business, reputation is everything. Listen to existing customers and suppliers, talk to employees, scour review sites and the internet to tell yourself if there are any red flags affecting the company’s reputation. After all, this negative feedback will inevitably reflect on you as an acquirer too.
The last thing you want is for the seller to start up again immediately after the acquisition and take his customer base with him. That is why it is crucial never to sign an acquisition deal without a non-competition clause. This is especially important for online businesses for sale. Since they are quick to copy.
In such a non-competition clause, the seller promises, on pain of substantial damages, not to engage in competitive activities for a certain period of time. Not only directly, but also indirectly, for example by financing or participating in another company.
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