Buying a business

Even if you buy an existing business, you must be equally knowledgeable about entrepreneurship and equally well-prepared as if you were starting a business from scratch. Buying a business requires a larger investment. You gain immediate access to resources such as premises, suppliers, equipment, and products.

Buying a business requires a larger investment

When you purchase a business, you gain direct access to resources such as premises, suppliers, equipment, and products. However, the downside of buying a business is that it necessitates a larger financial investment. Essentially, you pay for the fact that the business is already established.

Industry conditions may also influence your decision. Sometimes, it’s better to start a business from scratch and create a new market profile.

What are you buying?

You can buy companies in two different ways. Buying the company's shares means that you buy the company in its entirety with obligations and everything. If you only want to buy the assets and liabilities, you can buy part of the business. Both companies and individuals can buy shares or assets.

Purchase of shares

When you buy a business that is conducted in a limited company or trading company, you usually buy all the shares. The business continues as usual with the same name and with the same organization number. All assets, liabilities and agreements entered into go with it. The staff's employment agreement applies even if the company is continued with a new owner.

All previous agreements, rights and obligations of the company apply as they did before the purchase. This means that you are responsible for all errors and shortcomings that may arise due to the company's previous operations. For example, the company may have sold goods that turn out to be faulty.

Even if the company you bought is already registered, there are some things you need to change, including the board of directors, postal address, company signatory and information in the register of shareholders.

Asset deal

If you want to buy part of the business (a branch of business), you buy the assets. An asset deal is when you only buy the assets of a company, or selected parts of the assets. This could, for example, be supplier agreements, permits and other intangible assets. If you want to buy a business that is run as a sole proprietorship, it is always a matter of an asset deal.

In an asset deal, unlike a share transfer, it is easier to get an overview of what you are buying and what obligations it may entail. You can continue running the business without responsibility for previously made deals and commitments. The seller retains his company and thus his responsibility. If you continue to run the business, the employees have the right to follow along.

If you only buy the assets, you need a company in which you can run the business.

Finding a company

What do you want to buy?

When you want to buy a business, you should start by figuring out what you are looking for. Think about what motives you have, what focus the business should have and how you want to develop the company. Your company must match you and your desire for what your role as an entrepreneur should be.

To create a search profile, you can start by thinking about your personal circumstances. For example, how you will finance the purchase, what role you want to have in the company and whether it is the right opportunity for you and your family. Summarize all the points you come up with and then describe the company.

You may know in which industry you want to operate, with which customers and perhaps in which region. Also think about products, employees, marketing, equipment and more. By writing down your points, you can more easily describe what you are looking for, for example a business broker.

How do you find your company?

One way to find businesses for sale is through business brokers. Look up their websites and register your interest or contact a broker directly. But keep in mind that a business broker is the seller's advisor throughout the deal and if you are interested in a company that the broker mediates, you should hire your own advisor before a possible purchase. You can also hire your own business broker who will help you actively search for a business.

Banks and accountants have many entrepreneurs in their client base and sometimes they may have companies that they know are for sale or that will soon be sold. Some of them receive expressions of interest from those interested in buying companies.

Newspapers, business magazines, trade magazines and various websites often contain advertisements about businesses for sale. You can also place your own ad.

If you know a company that you are interested in buying, you can always try to contact the owner directly and register your interest.

Information and analysis

Once you've found an interesting company to buy, it's time to read up! When you contact brokers or sellers to get more information, it is an advantage to be well-read, it makes them perceive you as a more credible buyer.

Start by finding out more about the company on your own. It is easier to make a credible impression as a buyer if you have acquired some knowledge about the company in advance. You can then contact the seller who can help you with more information.

When you've found out what you can about the company, you can contact one of the free advisors available to help you move forward. Free advisors that you can use are, for example, Almi, banks, trade associations and Nyföretagarcentra.

Find advice and financing

Due diligence

A due diligence is an investigation that usually takes place during a business transfer, a kind of company inspection. The investigation can be seen as the basis for your decision to make sure that the company is right for you and that everything is in order.

When the parties have agreed that a due diligence is to be carried out, the buyer usually presents what he wants to investigate. As a seller, it is often important to ensure through a non-disclosure agreement that the buyer keeps the information about the company that is shared secret and does not exploit it. Make sure the advisors you use are kept confidential so you don't betray the seller's trust.

A due diligence is carried out by an accountant, lawyer or other expert on business purchases and the scope varies depending on the company's size and operations and the buyer's requirements. It can be quite expensive, but it is probably even more expensive to buy a company that is not what was promised.

What to find out

The purpose of the review is for you to find out whether the company suits you, the conditions of the business in the market, whether there are permit requirements or other conditions that affect the company. Does the company match your search profile?

You must also find out about the company's results, resources, organization, contracts and agreements entered into.

When buying, for example, a restaurant or a shop, it is important to investigate why the owner is selling. It could be the case, for example, that a competitor is to establish itself or that the property owner has other plans. Such factors naturally affect the company's value, and whether the company is worth investing in at all.

Sometimes the seller can get advice before a sale on how to make his company "prettier" in front of potential buyers. Therefore, examine both machines and premises as well as the accounts carefully. It is possible to show better results by, for example, postponing the maintenance of buildings, free work from family members, less provision for owner's pension or that stocks that cannot be sold remain in the accounts.

Will you handle personal data?

Asset transfers that include personal data, for example in the form of a customer register, you must handle according to the GDPR, the data protection rules. The law often requires consent to the handling of personal data. Other digital assets such as data and software may also be subject to restrictions. It is important that you know in advance what applies to all the parts of the company you are buying or taking over.

Processing personal data

Valuation and negotiation

Once you have found the business you want to buy, it is time to determine what the business might be worth. It is difficult to determine an objective price and the final price becomes part of the negotiation.

When you have gathered and analyzed information about the company, it is time to determine the price you are willing to pay. Even if the seller has valued the company, you should make your own valuation. Hire your own business intermediary or other adviser, for example an accountant or lawyer. The price usually becomes a matter of negotiation when you as the buyer have the information you need.

How is the value determined?

The value depends on many things, such as the industry, focus of operations, which development phase the company is in, whether it is a subsistence company or a company with a unique business idea. There are different valuation methods that take different parts into account, the value is therefore probably between the values ​​of two or more methods.

Valuation methods

There are many valuations methods, here are three common ones:

• Net asset valuation
• Return valuation
• Market valuation

Net asset valuation

Net asset value, or net worth, is the difference between the company's assets and liabilities and provisions. The method is based on the company's balance sheet and is easy to do. But it ignores the business concept and its possibilities and is basically impossible to use for a service company.

Return valuation

Return valuation is based on an average result over two to three years back in time and a few years ahead. The total result is then calculated with a factor that depends on risk. The valuation method is complicated and based on guesswork and assumptions, but it is the most widely used method. The method is mainly used if you want to value a company that makes profits based on personnel, business idea, market or something else that is off the balance sheet.

Market valuation

Market valuation means that the company is valued at the price that the market, based on experience, is willing to pay for a similar company. So you look at how much has been paid for other companies in the same industry, size and location. The method works best when valuing companies in industries where company transfers are common, such as shops, taxis, restaurants and kiosks.

Negotiate with the seller

Before a purchase, you should negotiate with the seller about the price and terms of the transfer. It is important that you, as a buyer, have acquired your own idea of ​​how the company should be run further. You should also have made a business plan with a budget that can form the basis of your positions in the negotiations.

Before the negotiation, you should also have carried out due diligence and made your own valuation. Then you can take a position on the seller's arguments, price and terms and respond to this based on the information you have obtained. The final price and contract terms are a matter of negotiation.

Contract

A business purchase requires a signed purchase agreement, but first you need to agree on all points of the agreement. Make sure you have your own adviser to help you with the contract and that you understand all the terms of the contract. Also, make sure that all important agreements and clauses are included in the written agreement.

Make a business plan

You should plan the start as carefully as if you were starting a brand new business. Making a business plan helps you develop your business idea and set goals for your business. You can also use the business plan to convince investors, suppliers, banks and other interested parties.

How to write a business plan