Buy a Company or Start One?
This is the question an entrepreneur asks themselves at the outset: “Start a business or acquire one?” When acquiring an existing company, they typically encounter a proven business model, established structures, an existing customer base, and cash flows. The buyer avoids the risk of starting a business from scratch. Even before the acquisition, they can assess to what extent they can use their entrepreneurial skills to successfully grow the company after the takeover.
With a purchase, the buyer knows their financial commitment, and planning is more predictable compared to starting a business from scratch. In addition, the financial risks are more manageable than with a startup, which can certainly turn out to be a bottomless pit. For this very reason, banks generally find it easier to finance a business succession than to finance a startup.
So why should business successors wait when the conditions are so favorable? Where are the pitfalls?
Consider Emotional Factors in Business Succession
First, there is the business owner who is parting with his life’s work. For him, the generational transition is an emotional decision with far-reaching personal consequences. For a buyer, it’s important to determine whether the entrepreneur is truly willing and ready to let go—and how they envision this process. Should responsibility be transferred gradually, or should the sale mark a radical break? Does this align with the buyer’s wishes and expectations?
Overall, business succession is a life-changing decision for both parties. And: A lot is possible! The terms of the takeover can be flexibly tailored to the needs of both the seller and the buyer. Ingo Claus, a consultant specializing in business succession in Osnabrück, comments: “There are succession solutions in which the senior entrepreneur completely withdraws from the company upon signing the agreement. There are also solutions involving the transferor’s gradual exit. Often, the transferor remains with the company as an advisor or on the advisory board, and the successor continues to benefit from their expertise. At the other end of the spectrum, it’s conceivable that the prospective successor would first join as managing director and gradually acquire ownership shares.”
The “chemistry” between the transferor and the successor also plays an important role; even small—and misunderstood—nuances can disrupt it. As a general rule, the greater the mutual understanding between the parties, the more willing both are to make concessions of all kinds. In addition to tact, it pays to involve a mediator with transaction experience: This person identifies potential conflicts early on, defuses them, and helps the parties develop a good solution for the business transfer.
Planning the Business Takeover Increases the Likelihood of Success
Careful planning of business succession is the most important factor for success. In addition to assessing the financial feasibility of a takeover, it is essential for the acquirer to draw up a comprehensive business plan to serve as a framework for both themselves and the financing banks. The positive side effect: When preparing the business plan, the acquirer is compelled to examine all facets of the company in detail. This positions them as a competent discussion partner for the seller and the financiers.
