The path to the ideal business
Opportunities and limitations.
Decision about the purchase or sale of a company is one of the biggest decisions in both the owner's and the company's life and can be equated with the decision on the establishment.
The purchase or sale of a business is a serious matter and is a process that always will be associated with a certain uncertainty. It is also a situation where the parties very rarely has sufficient knowledge and experience.
Once in a lifetime, selling a business.
Regardless of whether it is an existing company or a new business, the business case must be in place. The investor must base on an intention to develop the company in a certain direction, with the confidence that competitiveness can be achieved and/or other gain can be achieved.
Reflections on purchase of business.
When thinking about such a large decision as buying a business starts, there are a number of issues that arise.
The first question is aimed at the purchaser's own situation. Before these questions are evaluated and answered, there is no basis to proceed with purchase plans.
- Possibilities and limitations?
- What is the starting point for the buyer?
- How is the personal strength and competence?
- How is the economic situation?
- How is the hinterland (family and employees etc.) set?
- How should the process be controlled optimally?
When the personal relationship is sufficiently clarified, a series of new considerations arises.
- How to identify the right company?
- Where should the company be located?
- What industry wanted?
- What size desired?
- How is the company's overall competitive situation?
- What products?
- How is competition for the product?
It may in itself be problematic to get defined, how the buyer's wishes to the company is, but when it is established, there is a number of more specific issues.
When the desired operator is found:
- Can the purchase make a positive difference?
- What should the price of the company be?
- Who can put the price of the company?
- How is production equipment with regard to age and composition?
- How is the organization in your company?
- What are the earnings ratios?
- How is financing conditions in the company?
- How the company compare with competitors and the industry?
- Which guarantees make seller?
It is very important for a buyer to have formed the perfect advisory team who can assist the buyer both professionally and personally in such a complicated process.
- Who will be included at the advice?
- Who will advise in the concrete situation?
- What should it cost?
A buyer has rarely a sufficient capital to realize purchase of a business. Therefore, a new series of questions arise.
- Financing?
- Equity?
- Foreign capital?
- Co-investors?
- Shall the seller participate in financing?
- Should there be ongoing payments (earn out)?
When these many questions are answered, it is a prerequisite that a corporate buyer may create a value of the purchased company – he or she should be able to make a positive difference! Buyer may increase the company's turnover, reduce costs, improve the purchase and sales conditions etc., in order to create a better cash flow. Opportunities also exist to reduce risk, reduce the fixed capital etc.
Finally; the company can constitute a platform for later additions of other undertakings and thereby create synergy.
The path to the ideal business.
With the large range of enterprises, it should in principle not be difficult to identify the right company.
In practice, however, that the problem is connected with difficulties. These difficulties may e.g. be:
- Purchase during periods of difficult financing conditions.
- The undertakings offered are located in a geographic area which is not optimal for the buyer.
- Businesses are put up for an unrealistic price.
- Business is wrong.
- The sizes and potentials are not satisfactory, etc.
The most important factor is the line of business and then follows the geographical location of the company.
The size of the company is not a decisive criterion for the purchase of the company. Both the company's organization and economics is important for the buyer, the final choice of business. To the question, to identify the right business – the ideal business – belongs, however, that many small businesses are not viable after implementation of a generational change. That fact must be considered carefully.
There are relatively few companies that are presented as being up for sale. It is estimated that only 15-20% of businesses actually for sale, which appear in the databases. The majorities are placed via business brokers to selected strategic buyers, financial buyers or buyers in the brokers own database.
An effective network is crucial.