Business acquisition: selling or buying a business?

Introduction

A business acquisition is an exciting step in entrepreneurship. Perhaps you want to acquire another business to strengthen your existing one. Or you may be taking your first steps on the entrepreneurial path with an acquisition.

A business acquisition has 2 sides: the seller side and the buyer side. In this article, we explain what the process looks like for both sides and what options are available.

Why a business acquisition?

There are several reasons why a business takeover may occur:

1. Increasing market share: A business acquisition can help increase market share by adding new customers, products or services.
2. Access to new markets: An acquisition can help a company gain access to new geographic markets or new sectors.
3. Cost savings: A business acquisition can lead to cost savings by merging certain business processes, sharing resources and reducing duplication of functions.
4. Synergy: Merging two companies can create synergy, such as sharing expertise and technology, which can lead to improved performance and greater profitability.
5. Increase capacity: Acquiring a business can help increase production capacity and improve efficiency by combining production and distribution networks.
6. Reduction of competition: A business acquisition can be used to reduce competition by acquiring competitors or potential competitors.

Business acquisition: buyer's side

Type of buyers

In a business acquisition, there are four types of buyers:

• Management buyout (MBO): In an MBO, the company is taken over by current management, usually with financial support from outside investors. This can offer benefits such as a smooth transition and retention of knowledge and expertise in the company.
• Management buy-in (MBI): In an MBI, the company is acquired by outside management, usually with financial support from outside investors. This can offer benefits, such as the introduction of new knowledge and expertise into the company.
• Family business: In a family business acquisition, the business is transferred to another family or to an outside party. This can provide a smooth transition and ensure the continuity of the business.
• Investor: An investor acquires the company or takes a large stake in the company, but does not himself go to work in the company.

Roadmap for buying a business: 10 steps

Successfully acquiring a business requires careful planning. Therefore, we have written a step-by-step plan for a successful business acquisition:

1. Determine the acquisition strategy: When acquiring a business, you have two options: independently or with the guidance of an acquisition consultant. Acquiring a business independently would be a good option when the expected purchase price is relatively low. You can choose to approach companies yourself or through online platforms.
2. Identify the right company: Start by identifying companies that match your goals and interests. This can be done through market research, consulting trade magazines and industry associations, and networking/personal contacts. Wise here is to create a profile of the type of company you are looking for. Using the profile, you can identify potential companies and then approach these companies for introductory interviews.
3. Do extensive research: After you find the right company, a thorough investigation of the company you want to acquire is conducted. This includes assessing their financial situation, the state of assets and liabilities, the value of their brand and reputation, as well as any pending legal proceedings. Also contact employees, customers and suppliers of the company to gain a better understanding of the company's culture and reputation.
4. Determine value: Based on your research, determine the value of the business. Doing this at an early stage will give you a quick insight into the value of the business and therefore allow you to make the right offer to the seller. It is wise to hire a specialist for this to avoid a possible financial setback.
5. Discuss the acquisition: Discuss the acquisition with the current owner of the business. Be sure to discuss all the details of the acquisition, including price, acquisition structure and any financing that may be needed.
   • Financing business acquisition: To secure financing, you will probably need several forms of financing. The bank will provide up to 50% of the financing. There are a wide variety of forms of financing available. Consider a private investor, crowdfunding, microfinance or a subsidy scheme. Engage an accountant to map out your financial affairs and take maximum advantage of tax schemes.
6. Assemble a team: Put together a team of professionals to help you with the acquisition, such as an attorney, accountant and financial advisor. They can advise you on structuring the acquisition and conducting a due diligence/book review.
   • A book review, also known as due diligence, is an investigation conducted into the financial, legal and operational aspects of a company before an acquisition or merger takes place. The purpose of the book examination is to give the buyer a detailed understanding of the company's financial and legal risks and to uncover any problems or liabilities the company may have. The book examination usually involves examining financial reports, contracts, tax returns and other relevant documents.
7. Negotiate the deal: Negotiate the deal and make sure you discuss all the details, including price, payment terms, guarantees and any future obligations.
8. Close the deal: After all the details have been discussed and agreed upon, close the deal. Be sure to sign all necessary documents, including the stock or asset sale agreement.
   • Letter of intent for business acquisition: Is the overall picture right? Then draft a letter of intent, which ties buyer and seller together. This statement is the basis for the acquisition contract and it contains all the important agreements surrounding the acquisition, including an initial offer. This is important because it prevents problems later on. Precisely because there is so much involved in a business takeover, it is advisable to hire a specialist who can help you with this. That way, you can make a flying start with your new company.
9. Integrate the business: Integrate the business into your existing operations and ensure that all employees and processes are seamlessly integrated. Plan the integration in advance to ensure a smooth transition and minimize any disruptions to business operations.
10. Monitor progress: Monitor the progress of the acquired company and ensure that the integration goes smoothly. Monitor the company's financial performance and take action if necessary to address any issues.

Buy company benefits

Taking over an existing business has some distinct advantages, over starting a new business:

• You know what you are getting into: The business is running and it is clear what the costs, sales, profits and risks are.
• Financing: Financing is often easier to arrange in a business acquisition. This is also because the company has been around longer and has established a good reputation.
• Established customer base: When purchasing a business, you often gain access to an established customer base that is already familiar with the product or service being offered.
• Reduced start-up costs: Buying a business can often be cheaper than setting up a new business because many of the initial start-up costs, such as developing a product or brand name, have already been done.
• Trained staff: When buying a business, you often get access to trained staff who are already familiar with the operation of the business and the industry.
• Reduced risks: An existing business usually has a track record and reputation, which can make it less risky than starting a new business.
• Growth: Buying a business can accelerate a company's growth because you gain access to new markets, products, services or customers that you would not otherwise have.

Buy company disadvantages

There are also disadvantages to buying a business, such as:

• High cost: Buying a business can be expensive, depending on its size and success.
• Inheriting problems: When buying a business, problems may also be inherited, such as debts, laid-off employees or poor business processes.
• Existing contracts: The company may be stuck with long-term (rental) contracts that you might prefer to get rid of.
• Cultural differences: When buying a business, it can be difficult to change the corporate culture and get the staff and customers used to the new owner and corporate vision.
• Integration issues: Integrating an acquired company into your own can be difficult and can lead to management, process, systems and resource issues.
• Hidden problems: There may be hidden problems in the company that are not visible during the due diligence process, such as hidden debts, unused warranties or poorly performing departments.

Business acquisition tips: what to look out for?

A business acquisition is complex and there are many things to consider. Think very carefully about your needs beforehand. What kind of business suits you? A business that is already doing very well, or one that needs a new direction? A large company or a smaller business? Put your financial affairs clearly in order, so you know what your options are in that respect as well. Have you found a suitable business? Then start talking to the seller, prepare carefully and map out all the important information together with the seller. Some of the necessary information:

• Sales, profits and costs.
• Workforce, suppliers and inventory.
• Trademark law, patents and licensing.
• Leases and other contracts.
• Substantiation of the asking price.
• Investigate whether there are any pending lawsuits, debts or other drastic issues.

It may be advisable to sign a confidentiality agreement prior to the initial interview, in which the buyer and seller agree to keep the available information confidential.

Business acquisition: seller's side

Roadmap for selling a business: 8 steps

Selling your business can be a difficult and emotional task. That's why we've written a step-by-step plan for successfully selling your business:

1. Determine business value: Get an independent appraisal or valuation to determine the current value of your business.
2. Prepare the business for sale: Make sure all accounting is in order and that all financial and legal documentation is complete and up-to-date.
3. Prepare a sales profile: This document should contain all important information about your company, such as its history, financial performance, personnel, customer base and future prospects.
4. Find potential buyers: Use your network, engage a professional advisor, or post your sales profile on online business acquisition platforms to find potential buyers. Be sure to approach only serious buyers who may be interested in purchasing your business.
5. Conduct negotiations: Once you have found potential buyers, conduct negotiations on price and other terms. It is important to be realistic and aim for a win-win situation.
6. Enter into a sales agreement: After you agree on the terms, draft a sales agreement. Have this agreement properly reviewed by an attorney.
7. Transfer of the business: Once the sale agreement is signed, you must ensure that the transfer of the business goes smoothly. You must transfer all the necessary documents and guide the new owner through the acquisition process.
8. Communication to stakeholders: Remember to inform all stakeholders, such as customers, suppliers and staff, about the sale of your business. Make sure this communication is timely and careful to avoid unrest.

Benefits of selling a business

There are several benefits to selling your business, including:

• Financial security: By selling your business, you can receive a large sum of money, which can give you financial security for the future.
• Time and energy: Running a business can take a lot of time and energy. By selling your business, you can drop this burden off your shoulders and spend more time and energy on other things in your life.
• Risk mitigation: Running a business involves risks, such as financial risks or employee responsibilities. These risks disappear when you sell your business.
• New challenges: Selling your business allows you to take on new challenges. For example, by starting another business, traveling or starting a new career.
• Successful Closing: Selling your business can give a sense of success and satisfaction, especially if the business has become successful and sold at a good price get.

Disadvantages of selling a business

There are also some disadvantages to selling your business, such as:

• Emotional attachment: As an owner, you may have a strong emotional attachment to your business and find it difficult to let go.
• Tax implications: When selling a business, there may be tax implications, such as taxes that must be paid on the gain made on the sale.
• Financial setback: You may not get the price you had hoped or expected for your business, which can lead to financial disappointment.

Tips on selling your business

Here are some tips that may be helpful in selling your business:

• Seek professional help: It may be helpful to seek professional help in selling your business, such as a business broker, accountant or attorney. They can advise you on the sales process and the value of your business.
• Keep the sale confidential: Make sure the sale of your business remains confidential to prevent news from leaking out and negatively impacting business operations and customers.
• Ensure good communication: Good communication with potential buyers is essential. Provide clear communication about the company's value, operations, financial results and future prospects.
• Be flexible: Be willing to negotiate the sale price and other terms of the sale. Flexibility can help close the deal and make a successful sale.
• Consider the tax consequences: It is important to consider the tax consequences of selling your business. Consult an expert accountant to determine the best tax strategy for your situation.