Takeover is an increasingly popular way of entering the business world. Learn more about financing a business transfer in this article.
Business start-up and acquisition are two ways of entering the world of entrepreneurship. In a context where the population is aging, many owners wish to train a successor to whom to transfer their organization. Taking over is therefore an increasingly interesting avenue due to the diversity of businesses available to buyers.
Obtaining financing is a crucial step in the success of the project, whether it is a start-up or an acquisition. However, obtaining financing for an acquisition is in some cases easier than for starting a business.
START OR RESUME?
Each of the models has advantages. The choice depends greatly on your personal profile: your motivations, your desires, your personality, your context. One of the two options probably speaks to you more. Take the time to think about why.
START A BUSINESS
Starting a business is a very different process from taking over. It’s wanting to bring an idea to life, to materialize a project that you first built in your head. This requires a lot of autonomy, creativity and resilience.
Since a start-up business has no history, obtaining financing can be more laborious. You must rely on financial forecasts based on assumptions to convince donors to invest in your project.
ACQUIRE A BUSINESS
Acquiring a business means wanting to continue the work of an entrepreneur, wanting to innovate to bring the organization to another level. You have to be ready to take on great responsibilities.
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It is an option generally easier to finance, because bankers have information to put in their mouths. The company has history, customers, contracts, team, assets, etc. There are fewer unknowns and certain guarantees. In addition, the transferor participates in the transfer of his expertise. The buyer therefore obtains mentorship and support.
THE FINANCIAL SETUP
In financing, we often talk about financial arrangements. As a general rule, financing is rarely obtained from a single donor. We want to diversify our sources in order to reduce the risk and have flexibility in terms of reimbursement. A puzzle built from multiple pieces.
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THE PERSONAL DOWN PAYMENT
The minimum down payment is generally 20 to 30% depending on the size of the project and the situation of the buyer. Having an amount of money to invest in your project helps the credibility of your commitment. If you are ready to invest your own money, generally, it means that you want to succeed and that you are ready to commit to the risks of the business project.
THE SELLING PRICE BALANCE
The sale price balance (or sale price balance) is a loan granted by the seller. In a clear agreement, the seller finances a percentage of the sale price and the buyer agrees to pay an amount according to the terms determined during the negotiations. It is a method that makes it easier for the transferor to recover his asking price, because the payment is made over several years.
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Another advantage of the sale price balance is the flexibility of reimbursement. According to the agreement, the payments can be reduced or on the contrary increased according to the performance of the company. Repayment flexibility ensures a smooth transition as the business is able to breathe.
In certain riskier sectors such as retail, restaurants or certain services, conventional financing is often more difficult to obtain. The sale price balance therefore becomes an essential asset for the sale of the company.
Private funding can take many forms. Patient capital, for example, or what is commonly called “love money”, can come from family or friends. These people are usually not involved in the business and the repayment terms are favorable and flexible.
If the funding comes more from business people, they will be more likely to act as investors with a say in the company’s operations. They can also act as mentors. Sometimes the project is so large that private capital is needed to complete it.
These are essentially bank loans. These are often the main source of funding. A meeting with an advisor makes it possible to discuss several elements such as the duration of the loan, the interest rate or the guarantees. The company must perform quickly, because the repayment is made from the outset.
OTHER FINANCIAL PARTNERS
To support or complete the financial package, there are other financial partners such as economic development and government organizations that offer a wide choice of loans and assistance programs. Usually, these partners offer more flexibility for the first year of transition. All the subsidies obtained are added to the financial package.
GO A LONG WAY
It is easier to obtain financing from banks if the buyer has already collected a share of the capital. If, for example, he raises 35% of the capital thanks to his savings, a loan from the transferor and a family or private investment, the necessary financing from the bank is reduced. The financial package is diversified and therefore, it is reassuring for the banker.
In short, we want to obtain a financial structure that respects the parties.
ENTREPRENEUR PROFILE ANALYSIS
The ultimate objective of the financial partners: to ensure the survival of the company. They always analyze the management skills of the future business leader. Whether one wants to start or take over, one must demonstrate a willingness to become proficient in business.
HOW TO PREPARE WELL?
It may be interesting to take one-off courses or training in starting a business. If you have a minimum of knowledge and you understand the language of business, you will be more successful. Formations don’t have to be earned on day one. But by having a plan, you show that you want to learn and improve. Moreover, there are options for financial assistance to take training.
A NETWORK OF TAKEOVER STAKEHOLDERS
It is often the passion that drives the buyer, but the takeover stakeholders help to determine the structure to ensure the survival of the business. A network is reassuring for donors, because you are supported by experienced people. The rigor in which you must work is important. The company needs oxygen, flexibility.
Acquisition financing options are varied and attractive. Going too fast makes you miss interesting financing solutions. Coaching helps avoid costly mistakes and explore more options.
Build a network to increase the chances of success of your project!
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