If you want to become an entrepreneur, buying a company is a good option. By buying a company that is already in operation, you get many things ready, and you don't have to worry about all the stages of setting up, for example.
Buying a company is a convenient way to become an entrepreneur in many ways, as the finished company often comes with, for example, suitable production equipment, notoriety and customer base. Acquisitions are also beneficial for the national economy and employment. For example, when an aging entrepreneur gives up his or her business, a continuing new entrepreneur can secure jobs and maintain skills and customer relationships.
According to the 2021 SME Barometer, about 85,000 companies will change owners in Finland over the next five years. About one in three of Finland’s small and medium-sized enterprises is planning to change ownership in the coming years.
For example, you can get information about buying a company from Finnvera, banks or numerous store locations and services.
If you are considering buying a company, you should contact Suomen Yrittäjät in or near your area. There are change of ownership coordinators in the regional organizations who know how to tip over the companies for sale.
You can also find companies for sale in various services. One of these is Yrityspörssi.fi. Other trading venues are for example Yrityskaupat.net ja Firmakauppa.fi (in Finnish). In addition, the search engines provide a number of other places to trade and broker, as well as free and paid services.
You can research the above locations for sales and brokerage and find out if a business in your area would need a successor. You should openly talk about your intentions, for example, in your circle of acquaintances, as opportunities may open up surprisingly close. For example, according to a study conducted by Seinäjoki University of Applied Sciences, in 60 percent of acquisitions, the buyer and seller know each other in advance, and in as many as 80 percent of cases they operate in the same or a neighboring locality. You can also contact the company you are interested in directly, where a change of ownership may be a topical issue.
It is the price at which the seller is willing to give up, the buyer is willing to pay and the financier is willing to finance. A lot of things affect the price of the company you buy. Particular attention should be paid to the fact that the final price may differ from the tax fair value of the company, which often has tax consequences. You can use search engines to find online counters and consulting services to help you evaluate.
See how Risto Tuunanen and Reetta Sahinjoki went through the process of buying a company.
How is the value determined?
Determining the value of a business to be acquired is always a case-by-case process and is influenced by a great many factors. The value of a company is always buyer-specific because the buyer makes the future of the company and its value. In taxation, the fair value of a company is determined using the substance and return value methods. It makes sense to rely on the help of a professional to determine the value of a company, but it is a good idea to familiarize yourself with the matter yourself.
Only a few acquisitions result in the buyer paying the full amount of the transaction from his own funds. Loan money is almost always needed for an acquisition. You should ask about financing opportunities from banks and Finnvera. Be sure to request financing offers from more than one bank.
What do the business practices of the acquisition mean?
Roughly speaking, there are two ways to make an acquisition:
1) selling the business,
2) by selling shares or company shares.
The method chosen may affect who is the seller, what responsibilities are transferred to the buyer and what tax consequences the transaction has.
How does the generational change take place?
A change of generation is a subtype and method of change of ownership and thus an option to become an entrepreneur. When a successor to a company is found in close circle, there are often many winners: a generational change benefits the transferor, the start-up and the company itself. The best results come from good planning and open speaking.
Taxation of acquisitions, changes of ownership and generations
Taxes on capital gains are paid by the person whose property is sold. The trade of a business name is always a business transaction, in which case the seller is the entrepreneur himself. In other forms of business, the seller can be either the company or the entrepreneur himself, depending on the way of trading and the ownership structure. In this case, the tax consequences can also be imposed on either the company or the entrepreneur himself. The buyer should consider whether it is more appropriate to purchase the company’s business or the company’s shares or stocks. The method chosen is relevant to the responsibilities and tax consequences transferred in the transaction, and therefore it does not always matter which of the implementation methods is chosen.
See how Jari Taimi went through the process of selling his company.
What kind of expert help is available?
You can find all the information related to starting your own business free of charge, for example, in our guide on starting a business, on the website of the Finnish Enterprise Agencies, on the Finnish state-owned financing company Finnvera and on the website of Suomi.fi.
Own acquisitions are a risk, and you should seriously consider seeking the help of industry experts. The use of a professional ensures the success of the acquisition without hindsight and is in the interests of all parties – the buyer, the seller and the financier.
However, it is a good idea for the person planning the acquisition to ensure that the expert used has experience specifically in the change of ownership and the resources to successfully complete the acquisition. Generational changes within the family often require different skills than selling a business to an outsider. It is a good idea to check which specialty the expert is more representative of.
Members of Suomen Yrittäjät can also take advantage of the advisory service in matters of change of ownership.
The regional and industry associations of Suomen Yrittäjät have contacts with experts on change of ownership.
Where can I get help starting a business?
Download our comprehensive information package on starting a business for free
Read all about starting a business! The guide also gives you advice on how to avoid the worst pitfalls.
Planning a merger or acquisition? Here is a checklist to help you.
1. Start in time
Generally, the process of selling a company lasts about 10 months, but very often it stretches to over a year. What is unfortunately most common is for the company sale to fail completely or for the company to be wound down without any attempt to sell it.
The only way to speed up the process and ensure the deal is to invest money, time and the services of professionals in M&A. Many companies, before they are put up for sale, contain numerous tasks that when completed would speed up and ensure the deal, but which take time.
As a buyer, you should remember that your dream acquisition is not necessarily going to come along at precisely the time you want to buy. This too is a goal that you need do some work on achieving.
2. Use a professional to help you
Using professional help saves you time and effort, reduces risks, and eases decision-making even when you are only thinking about M&A. What’s more, initial consultations with experts are generally free.
An expert can tell you right away which path is the most sensible to go down or whether your plan should be delayed or buried completely. At the same time, you’ll find out what help is available, whether you need it, and how much it costs. Experts’ fees are just a few per cent of the whole deal, meaning the cost-benefit ratio is good.
3. Gather information, demand information
Gather all the contracts, documents, blueprints, financial statements and other papers for the company from the past three years in a single file, if they fit. You cannot sell a company, and it is not worth buying one, if its documents are not in order.
Whereas a seller should check the buyer’s background, a buyer should inspect the most important documents for the company on sale. It is not worth going any further at all in a merger or acquisition if the documents you request are not supplied. The seller, on the other hand, should know that information gaps increase the buyers’ risks and reduce their willingness to pay the asking price.
You should talk to financiers and ask their opinions on whether finance could be issued for the asking price and on what terms. Financing an M&A deal is significantly harder than getting a mortgage for the same size, for example. Before disclosing important information, you should ask the buyer to sign a proper non-disclosure agreement to reduce hostile corporate espionage.
4. Create a realistic strategy
Find out what the M&A deal would mean in your case: what advantages, problems, costs and taxes it would involve and how the deal could be financed in various scenarios.
Get a realistic valuation which considers which kind of buyer would most probably buy your company and how that buyer would finance the deal. Unrealistic strategies and valuations can easily spoil the opportunities for the whole deal.
As a seller, you should remember that the buyer generally always has options — at least the option of not buying. You the seller, on the other hand, have just one item for sale. To sell it, you need to act wisely. Buyers are rarely queuing up to buy a company, and a sale built on unrealistic demands can permanently damage the reputation of the company for sale.
A buyer, on the other hand, can ruin a relationship with the seller by haggling on the asking price without a reason. Valuations done by professionals are fact-based calculations, not rough guesses.
5. Ensure the deeds are good
The length of a deed in an M&A deal has no intrinsic value, but generally if there are fewer than six pages (or more with wider spacing), it will be sure to leave out matters that are important for a safe, successful deal.
What does the deed say happens if the asking price is not paid, or the machines bought do not work or do not belong to the seller, even though they should? Investigate every matter stated in the deed. Ask what happens if things do not come through as planned and what the deed says should be done next.
You must be sure that the most important issues, at least, have been recorded in writing and that you understand what they mean in practice. The buyer has the obligation to request information and the buyer has the obligation to provide it. Consumer production does not apply to M&A. There is no use in claiming afterwards that you did not understand the contract.
A good deed prevents against future disputes and gives guidance on steps to take if surprises occur. Here too, professional help is quite useful.
6. Transfer for real, take over for real
The date the deed is signed and the date of transfer of ownership right is often not the same day. Before or when ownership right is transferred, documents such as inventories are often drawn up as the basis for verifying the sale price.
When ownership has been transferred, the seller should transfer operations for real and give way to the new owner. You should do this even if the deed specifies a transfer period during which the seller is still at the company’s disposal. The transfer period is important, but even more important is the real takeover, with which the company moves into the buyer’s hands.
