Taking over a company with the help of your banker

An entrepreneur is a creator; he or she takes a risk by investing his/her capital in a project with the desire to transform his/her idea into a business. As it develops, the business creates a relationship with its clients and its suppliers, takes on employees, and innovates. This entrepreneurial spirit is firmly established in Luxembourg. Despite the turmoil of recent years, the increase in business start-ups, the number of businesses and their revenue figures bears witness to this.

We put more emphasis on creation. But what about taking over a company? In this Meet an entrepreneur article, we share some insight and tips for preparing for and making a success of this transition in the best conditions.

The takeover of a business is part of its life cycle

Throughout the life of the company, the entrepreneur focuses his attention on the development and operational management of his company, but he often forgets to plan for its future transfer. However, it is an important step for the sustainability of the activity. The transfer of a company is a natural part of the life cycle of all businesses and and hence there are many craft and commercial businesses that are looking for a buyer.

There are several reasons why the entrepreneur may decide to sell his stake:

• to allocate his/her funds to other projects
• for personal reasons
• to hand the reins to someone else and take full advantage of his/her retirement.

An opportunity to consider for entrepreneurship

The benefits of taking over a company are many:

• The buyer takes on staff who are already trained, and established suppliers and customers.
• He/she is buying not only the brand, but also the working tools.
• He/she can demonstrate to his/her investors and suppliers that the activity he is taking over generates a certain revenue (history) and therefore a guaranteed income.
• He/she has a better access to bank financing than for a business start-up, because the banks can rely on a history of the activity instead of a business plan containing forecast figures.
• The time spent on the management and development of the business is less significant for a takeover, since there are foundations on which to start again.

In the case of business creation, these elements are not only essential but they are also very time-consuming. Obviously, the financial aspect is a considerable help. If the company has a positive business history, this is a significant plus!

Preparation is important when taking over a business!

An essential component for the success of a takeover is preparation. Indeed, a change in management that is too hasty and unannounced could lead to loss of customers and suppliers, and cause concern and departures among the workforce.

The cost of taking over a company is higher than starting one up. The buyer must compensate the seller for the investments that he has made, for any stock, and for his customers and employees.

How to finance a company takeover?

The cost may be partially financed by banks. If the takeover is feasible, banks are not generally willing to finance it 100%, and often require a significant contribution in capital from the buyer. This capital is not always available and for this reason, takeovers do not always succeed.

In order to make a company takeover a success, Spuerkeess has developed a product that allows the takeover of a company even if the buyer does not have all the equity to finance the transaction: the subordinated loan. The subordinated loan is added to the buyer’s available capital, thus giving them the funds needed to finance the takeover.

The structure of the finance is therefore made up of two loans:

• a traditional loan for the acquisition of the company, to be repaid over several years without affecting the financial health of the business,
• and a subordinated loan to be repaid on the final maturity date, i.e. when the buyer has repaid the acquisition loan and developed the business.

Our final tips for a successful business takeover

• carry out an in-depth analysis of the company to be bought
• have good visibility on your own equity capital
• prepare thoroughly for the takeover, to ensure its success
• keep employees, suppliers and customers informed about the takeover
• establish a sound financing plan in collaboration with the bank

Clearly, a takeover is an option to consider if you want to embark on a new entrepreneurial adventure! Keep in mind the advantages and disadvantages of such a choice.

If you want to contact Spuerkeess, talk to your nyuko coach. In particular, there is a “Business Creator” offer with several advantages that might interest you. Check out the details here.