How to buy a business in Nigeria? What you need to know
Entrepreneurship does not necessarily mean creating a business from scratch. Buying a business can also be one of the options available to future entrepreneurs. Moreover, the steps to buying a business are just as numerous (and sometimes tedious) as for the creation of a brand new business.
From the search for a company to buy to the financing of the takeover project, through the conditions for acquiring an already existing company, it is important to know the steps well before deciding to buy a company.
Who can buy a business?
Anyone with serious motivations can buy a business to continue to develop it. It is nevertheless strongly advised to justify a solid experience in entrepreneurship. The buyer must be able to prove that he understands the challenges of the market and the company in particular and that he has a development plan for the business he wishes to acquire.
When to buy a business?
There is no perfect time to buy a business. Legally, the company’s capital or equity must be offered for sale.
On the side of the buyer, the right moment is the one during which the development potential of the case is analyzed and confirmed by figures and statistics. The takeover candidate must also ensure that he can meet all the conditions for extending the development of the business, whether purely financially or strategically.
How to finance a business takeover project?
To finance a business takeover project, several ways are possible. For the buyer, the easiest way is to invest equity, from savings or a loan from relatives, or to use crowdfunding. To be relevant during the takeover proposal, this type of financing must be around 25 to 30% of the total amount of the investment.
Alternatively, the candidate for the takeover of a company can mobilize public aid. Funding organizations such as chambers of commerce and industry or business incubators are safe sources of investment since they take into account the seriousness of the takeover file to grant or refuse to fund.
A more classic solution, the buyer can have recourse to a bank loan, with or without guarantee. In the same way, as for public aid, the relevance of the takeover file will be analyzed carefully, but this type of financing involves indebtedness on the part of the company buyout.
Finally, it is possible to appeal to investors when setting up a business takeover project, in the same way as for business creation.
Where can I find a business to buy?
Buying a business is not as common as starting a new one from an idea, market research, and then set up in an industry. However, seasoned entrepreneurs are often aware of disposal projects. For those who are just starting, it is necessary to set up a specific routine so as not to miss out on interesting acquisition opportunities.
First of all, word of mouth is a method that still works very well in the case of a business takeover project. Members of entrepreneur networks are quickly informed of the resale intentions of entrepreneurs in a particular market or sector.
On the Internet, many solutions also exist to identify business leaders who plan to sell a business. In many cases, you have to be reactive and quickly present a takeover project to position yourself about other potential buyers. This is the case on the sites of organizations specializing in the creation and takeover of businesses or even platforms for connecting buyers and sellers.
Finally, a buyer can adopt a more direct methodology by directly contacting the companies that he considers interesting for a takeover (even if this takeover is still at the project stage), or by responding to announcements of disposal.
Steps to buying a business
These steps make it possible to minimize the risks associated with the resumption of a business or a trade.
1. Define the type of business to take over
The first step in buying a business consists of defining the type of business to be taken over, i.e. defining the scope of the takeover project by determining the sector of activity, the geographical area, the size of the company, its customers, etc.
The buyer must above all target a type of company that is consistent with his project and his business development ambitions. This is an essential phase to convey the image of a serious and motivated takeover candidate.
2. Start looking for opportunities
Once the project is well framed, you have to start looking for a company to take over. During this step, it is advisable to activate as many networks as possible:
- Direct prospecting
- Connecting platforms
- Networks of entrepreneurs
- Lending organizations
- Word-of-mouth is also effective, given that business takeovers are generally at the discretion of entrepreneurs among themselves.
3. Identify a business to buy
Once the takeover project has been specified and a few companies pre-selected, the prospective buyer can then focus on a particular company. To present a file on time and have every chance that the transferor consults it, it is important to quickly compare the characteristics of the company selected with the takeover project, through a rapid diagnosis. The objective: to effectively assess the level of opportunity.
4. Meet the transferor
Despite the geographical distance, meeting the transferor is essential to get an idea of how the business operates in real conditions. This moment must be considered by the prospective buyer as an opportunity to obtain all the structural information on the company. If the takeover is planned with the maintenance of the employees, it is possible to discuss with them how the transfer is presented to them and therefore to become aware of the challenges of the transition from one manager to another.
In short, this meeting between the transferor and the takeover candidate is essential to gauge the level of maturity of the project on the transferor’s side and thus assess the appropriateness of the takeover.
5. Assess the business and negotiate
During this exchange with the seller, the buyer can collect as much information as possible about the company he has selected for his takeover project. This data is essential to validate or not the decision to continue with this company. They are also useful for starting to build the foundations of the future business plan.
To assess the business to be taken over, the entrepreneur must take into account both his financial and human capital. After having collected all the information he needs, he can move on to setting up diagnoses, economic restatements, then applying the appropriate evaluation methods.
6. Write a letter of intent
After having carried out a few diagnostics and evaluations of companies (it is indeed rare to find a company to take over on the first try), and validated a draft business plan, the buyer must formalize his agreement with the transferor of the company.
In this process, it may be necessary to exchange confidential information on the functioning of the structure. The assignor must then ensure the seriousness of the buyer’s intention. Before officially entering into negotiations, the latter must therefore send a letter of intent, which aims to define a framework around future negotiations. It validates the interest of each party (the transferor, on the one hand, and the buyer, on the other) to reach an agreement. The drafting of the letter of intent thus marks the beginning of the official formalities for the business takeover.
7. Carry out audits
Acquisition audits, also called due diligence, are diagnoses whose purpose is to assess several aspects of the takeover of the company to certify the validity of the information transmitted by the transferor. Each audit focuses on a specific recovery issue. All of the audits make it possible to assess the sale price to measure the opportunity.
8. Build a business recovery plan
The business takeover plan is the equivalent of the business plan for the creation of a company. Quite formal, this essential document makes it possible to define the strategy and the objectives of the takeover. Its role is to demonstrate in a purely objective manner that the takeover project is viable and realistic. It is also this document that must be presented to request financing from a bank or any other lending institution.
9. Initiate takeover negotiations
Negotiations on the takeover with the transferor of the company can only take place once the information provided has been verified and the buyer has estimated that this takeover project represents an interesting opportunity. As a result, the negotiations do not relate to the foundations of the takeover, but to specific elements, such as the choice to take over only the funds of a company (its assets) or its securities (its assets and liabilities).
This example is a good illustration of the balance to be found between what the assignor and the buyer have to gain respectively. The outcome of the negotiations has a direct impact on the legal structure of the takeover. It is therefore essential to organize them before the implementation of the administrative formalities.
10. Go to the legal set-up
The arrangement consists of maintaining or modifying the status of the company, which de facto changes ownership. Depending on the legal form of the business, the takeover conditions are not the same. For example, when buying a sole proprietorship, it is only possible to acquire its assets, that is to say, its goodwill or its artisanal fund.
Contrary to the creation of a company, the legal setup for the takeover of a company does not depend on just one actor. Rather, it consists of a game of diplomacy between the prospective buyer and the transferor.
11. Implement the formalities of the company takeover
The administrative formalities for the takeover of a business begin once a memorandum of understanding has been signed. This legal document contains in writing all the points of the negotiation and legally formalizes the agreement that was reached between the two parties (the conditions and methods of recovery).
If financiers have been solicited, the funds corresponding to the loan or donation can be released as soon as the memorandum of understanding is signed. The buyer and the transferor then sign the deed of the final transfer.
Thereafter, the administrative formalities are similar to those of a business creation with, in addition, the recovery of company titles and goodwill or craftsmanship