Acquisition – tips for buying a business

Buying an established business is a good alternative if you intend to become an entrepreneur. Business operations can be started immediately, thanks to the company’s customers and turnover.

Tens of thousands of Finnish companies will need a new owner in the next few years when their current entrepreneurs retire. Many viable companies have to quit their operation due to not being able to find a person to continue their business.

Buying an established business offers a good opportunity to make dreams come true and become an entrepreneur.

Why is it worth buying a business?

When you buy an existing business, you will get a ready-made business idea, customer base and company reputation at the same time. 

You can utilise and develop a complete business without having to expend so many resources in developing products and services or in acquiring customers as when setting up a new business.

In addition, buying an established business is less risky than setting up a new one. According to a survey, 92 per cent of companies are still in operation after three years following the change of ownership and 77 per cent after five years.

Alternatives in buying a business

Basically, there are two ways of buying a business. You can buy an existing company or just its business.

A limited liability company can be purchased through share trading. In share trading, the company’s shareholders sell the shares entitling ownership of the company to the buyer. Through the transaction, all the rights and responsibilities attached to the ownership of shares, such as debts and liabilities, are transferred to the buyer.

In a business transaction, the company sells its business to the buyer in full or in part. As part of the transaction, the company’s customer-based and contractual relationships are often transferred to the buyer. However, debts and liabilities are not transferred but remain with the seller. Neither does a business transfer affect the ownership of shares of the seller company.

Take the following into consideration if you intend to buy a business

1. Are you sufficiently familiar with the sector?
According to a survey, the buyer’s familiarity with the sector and their experience as an entrepreneur or employee help them succeed in the acquisition. Even though the buyer will benefit from having earlier experience about entrepreneurship, this is not decisive. 

2. Does the business you are buying match your goals? 
Before buying a business, you should make sure that it is not excessively identified with the previous entrepreneur or does not depend on their input.

It is also possible that the business on sale has accumulated operations and assets over the years that are not necessary for the core business or the buyer. It is no use paying for unnecessary assets, which should preferably be cleared from the company’s balance sheet before buying.

3. What does the future of the business look like?  
The business of the company you are buying should be profitable. Thoroughly familiarise yourself with all aspects of the company, including financial statements and assets. 

Also, carefully look at the competitive situation in the sector as well as at the company’s prospects and plans. 

All of these play a role in determining the company’s value and the price at which it is reasonable to buy it. We recommend that you consult corporate transaction experts in this.

Read more about how to measure the value of a business

4. How do I finance an acquisition?
Buying a business should be considered as an investment that will pay itself back within 2-6 years. 

Small transactions are usually financed through the buyer's funds and a bank loan. The bigger the transaction and the more complicated the arrangements for the transaction, the larger the number of financing methods and financiers needed.

Please contact our experts and together we will find the solutions that best suit your needs!