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Corporate finance

Takeovers: the fast track to business ownership

June 20, 2024

Are you thinking about buying a business or expanding an existing venture? Taking over an existing business can help you reach your goals more quickly, but that doesn't mean you get to skip the preparation phase. Knowing what's involved in a business takeover will help you decide if it's the right option for you before you take the leap.

Most startups aren't financially viable at the beginning. When you consider the time and effort required to find and train employees, develop new products and services, and build a network of clients, suppliers and partners—it can take years before your business starts to become profitable. That said, acquiring a fully developed business can be a great way to get there faster.

How to assess the value of a business

A business's selling price is often based on how well it's performed in the past. This involves looking at past profits and making adjustments based on factors you might not be able to reproduce as the new owner. Hiring a business valuation specialist will help you come up with a baseline price range you can use as a jumping off point for negotiations with the seller.

What goes into the financing package

In order to close the transaction at the agreed price, you'll need a financing package, which is usually made up of different types of financing. The most common ones are outlined below, but you can also talk to an account manager about getting a personalized financing plan that's tailored to your specific needs.

  • Business transfer loan: an amount of money that's fully secured, partially secured or unsecured, that the business will pay back in installments over a set term.
  • Subordinated debt: an unsecured loan that ranks below more senior loans and can be repaid with more flexibility, depending on cash flow and sales cycles.
  • Balance of sale price: financing by the person selling the business, who will be reimbursed once all commitments to institutions and lenders are met, as outlined in the financial statements.

Equity investment: the person buying the business invests their own money to become a shareholder. The Fonds de transfert d'entreprise du Québec (FTEQ) often works with other institutional funds to support buyers who choose this approach. 

Internal financial partners

Creating a worker-shareholder cooperative allows employees and managers to acquire a stake in the business. This arrangement is financed through an institutional loan from a partner like Desjardins Capital, and later reimbursed via payroll deductions. During a labour shortage, this approach can be a great way to retain talent and key employees.

Elements of a successful transition

Business transfers often involve a change in management, which can impact partners, suppliers and employees. That's why it's so important to make sure the business you're acquiring is in good shape financially. The seller should also be involved in the process to help reassure anyone who might have concerns. Understanding the market is important, but it's also important to sharpen your management and motivational skills. It's the best way to ensure your new employees will be on board with your vision as the new owner. Finally, the price you pay for the business needs to be fair.

"A higher sale price often makes it harder to find financing. Too much pressure on cash flow can limit your growth potential and increase your business's risk level. If you do wind up paying more, make sure you're getting a clear benefit in return."

– Richard Quinn, Director of Business Transfers at Desjardins

Desjardins Business: Advice and referrals you can trust

To help you with these steps, Desjardins has created a comprehensive business transfer assistance model that covers everything from thinking about what you want and coming up with a plan, to closing the transaction and completing the change in ownership. In addition to supporting you with all of the financial aspects involved in a business takeover, our Desjardins advisors can refer you to specialists who are trained to meet more specific needs. This includes business valuators, human resources specialists, strategic planning and organizational development professionals, tax experts, accountants and lawyers.

"When taking over a business, the right support and advice can help you stay level-headed and know what challenges to expect so you can plan ahead."

– Richard Quinn, Director of Business Transfers at Desjardins