Takeovers: the fast track to business ownership
Are you interested in taking a business? Here’s an overview to help you better understand the process and give you some things to think about.
Startups can spend years hiring and training employees, developing new products and services, building their network of customers, suppliers and partners, and achieving solid financial footing. Acquiring a mature business is a fast track to the same results.
How to assess the value of a business
The selling price is often based on a multiple of the company’s past profits. Hiring a business valuation specialist will help you set a price range as a starting point. That’s when the negotiations with the seller begin.
What goes into the financing package
To complete the transaction at the agreed price, the financing package generally combines multiple solutions. The following approaches are the most common, but an account manager might recommend a different financing structure that’s tailored to your particular situation.
- Business transfer loan: an amount of money that is fully or partially secured or unsecured and that you repay in pre-determined installments.
- Subordinated debt: debt that ranks below senior debt and can be repaid with more flexibility, according to cash flow and the sales cycle.
- Balance of sale: financing by the seller that’s repaid after commitments to institutions and lenders are met based on financial statements.
- Equity investment: you put in your own money to become a shareholder. The Fonds de transfert d’entreprise du Québec (FTEQ), in collaboration with certain institutional funds, can provide support with this.
Financial partners within the company?
Creating a worker-shareholder cooperative allows employees and managers to acquire a stake in the business. This participation is financed through an institutional loan from a partner like Desjardins Capital, which is then repaid through employee contributions. Given the labour shortage, this approach is an excellent way to encourage the retention of key employees.
Elements of a successful transition
A business transfer involves a change in management, which impacts partners, suppliers and employees. That’s why it’s important that the business you’re acquiring is in good financial shape and that the seller is involved in the process and can reassure those who are impacted. You should have a good understanding of the market, possess management skills and know how to motivate employees to carry out your vision. Finally, the price paid should be within the usual range.
“A high price makes it harder to finance the business transfer. Cash flow pressure limits the potential for growth and increases the level of risk. If you pay more, make sure you’re getting a distinct benefit in return.”
- Richard Quinn, Director, Business Transfers, at Desjardins
Desjardins Business: a good source of advice and referrals
Desjardins facilitates this process with a succession support model that considers the various stages of reflection and evaluation, transfer strategy and planning, as well as the transaction and transition. Besides providing valuable help with the financial aspects, Desjardins advisors can refer you to tax specialists, accountants, lawyers, HR specialists and strategic planners for more specific needs.
“Getting good advice and support helps you stay objective and identify and address the challenges involved in acquiring a business.”
- Richard Quinn, Director, Business Transfers, at Desjardins