Taking over a company without equity: 10 tips for your success
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Business people consider a company takeover without equity capital

Take over a company without equity capital

Taking over a company is associated with a high financial outlay for the buyer. This is often particularly difficult for young and highly qualified entrepreneurs. They do not yet have the necessary funds and collateral of their own and might be the perfect successor for a family business.

But there are Interesting options for financing a company takeover. Even without equity capital.

Don't have much time to read? Our article at a glance:

  • A classical takeover can be achieved by Equity, debt capital or subsidies/grants (or combinations of these points) are financed

  • The capital requirement for the takeover should be calculated precisely in advance

  • As alternatives to equity, we give you 10 Suggestions for financing the acquisition

CORE-Graphic-6-Foundations-to-Buy-a-Company

6 reasons to take over a company

  1. An existing company has already established itself in the market ? start-ups have yet to succeed.
  2. A functioning business idea is already in place and guarantees resilient turnover from day one.
  3. Modernising is easier than justifying ? at least when it comes to a calculable investment backlog.
  4. Trained staff is usually available and this is one of the most important arguments for a company takeover.
  5. There is a customer base and this can be actively used to expand the existing business model.
  6. Fixed assets are available and help to secure financing or, ideally, can even represent hidden reserves.

Advantages of a company takeover

When you take over an existing business, you can benefit from its good reputation, current earnings, employee and customer base and fixed assets. In many cases, you can continue to operate the business with only minor changes. A existing company, should it operate profitably, is therefore often more future-proof than a newly founded company.

From a buyer's perspective, there are important framework conditions that you should consider. Feel free to take a look at our webinar:

In our online seminar, we tell you how to find the right company at a realistic price. Take advantage of all opportunities and benefit from subsidies!

Classic ways to finance a company acquisition

How can I get a Company acquisition finance? There are three common ways to finance a company acquisition. Either through existing equity capital, through debt capital (loan from a bank or savings bank, private equity) or through subsidies/grants, e.g. from KfW.

Typically, company acquisitions are made via a Sensible financing mix built up from these three aforementioned possibilities.

Equity

If one finances the Company acquisition through equity, you pay the purchase price with your own assets or can provide your own collateral (e.g. real estate) for the financing construct. No outside help is needed for financing and together with a bank or savings bank the purchase price can be implemented. Exceptions can be a Seller loan or venture capitalists, who are also fully liable within the framework of an equity contribution and thus share the entrepreneurial risk.

Debt capital

When taking over a business, you can obtain a targeted loan from a bank or savings bank. These are usually characterised by Configurable financing amounts, long terms and low interest rates (probably changing at the moment). Ideally, you should look for a loan that allows for unscheduled repayments. If the business becomes profitable quickly and strongly, a buyer may want to refinance more quickly.

It is worth comparing different financing offers before you decide. A Personal consultation with an expert can be beneficial. You usually need a detailed business plan and corresponding forecasts to obtain a loan. Prepare for such an appointment by having this information ready and don't just treat it as a casual get-to-know-you meeting.

The financial service providers want to understand from the outset what your company is about and why it is safe in terms of perspective that refinancing can succeed. Be prepared for the fact that a bank will also have industry specialists ready as discussion partners who have comprehensive knowledge and formulate questions accordingly.

Loan possible without equity capital?

You would like a Buy company, but do not have the necessary equity or collateral? You probably think that this makes it impossible to take out a loan, but there are actually ways to take out a loan without sufficient assets of your own.

If you have an excellent credit rating and a high income, you may be able to get a Loan without equity or collateral receive. However, this is usually only possible if the loan amount is smaller and the repayment period is short. In most cases, you need a sufficient form of collateral to secure a loan for a company purchase.

One way around this is to use the assets of the business you want to buy as collateral. This can be done by taking out a loan against the value of the business. Any financing partner will critically examine the possible value and only accept it as possible collateral at a discount. Even in the case of real estate, there are considerable reductions between a possible market value and the lending value from a bank's point of view. If own values, such as a private house, can be given as collateral free of debt, this probably helps a lot.

How high should the equity ratio be?

The equity ratio (i.e. the personal share in the purchase price structure) should be between 10 and 30 percent. Depending on the scale and nature of the business model and the industry. There are ways to increase equity. For example, through a vendor loan and additional active or passive shareholders. Also a Management Buy Out MBO can help to secure financing in a company acquisition, while at the same time linking key employees to the successor and increasing the retention rate of key positions.

Procedure for determining capital requirements

If you want to take over a business, it is important to know the capital requirements first. This will help you find the right financing partners to make the purchase possible. Remember that a business takeover is usually more expensive than a start-up, as you are buying an existing business.

When planning your finances, it is important to accurately assess your capital requirements so that you can raise neither too little nor too much money. In addition, you must have sufficient liquidity in the long term to be able to finance a Growth phase after the acquisition to implement. Later renegotiations with banks are then rather tough and not loved.

The largest components of an investment, or the purchase price, include Land, fixed assets and necessary investments for modernisations (especially in the case of an investment backlog). You also need to factor in ongoing costs, depending on the earnings situation. Make sure that you have enough capital available to cover these costs or that they can be reliably serviced from your cash flow.

Example

Mrs Müller would like to take over the bakery from Mr Huber.

The land and bakery business are owned by Mr. Huber. An agreement has already been reached on a Countervalue of 500,000 Euro was agreed.

It is still a Fixed assets of approx. 100,000 euros available. This includes both the bakery equipment and the salesroom equipment.

And also a Current assets (inventories) of approx. 10,000 euros is still available. The company generates stable earnings of approx. 100,000 euros after the entrepreneur's wage EBIT (earnings before interest and taxes). The purchase price therefore corresponds approximately to the factor 5 x EBIT.

After detailed examination, it is clear that the seating area for the consumption of goods on site urgently needs to be renewed and modernised. This will take approx. Costs of 30,000 euros cause.

  • Land and bakery building: 350,000 euros
  • Fixed assets: 100,000 euros
  • Current assets: 10,000 euros
  • Total: 460,000 euros as the "net asset value". This also corresponds approximately to the assessed income value of the bakery.

Although the bakery also generates sales and income that can cover the following, ongoing financing needs, it should be taken into account in this case that operations will be limited when the seating area is modernised.

KERN-Graphics-Capital-Needs-Takeover-Bakery

Problem: Company purchase Incidental costs must also be paid by the buyer

If you are considering a business acquisition, you should all Include additional costs, e.g. for notary, lawyer or tax advisor. These can add up and it is therefore important that you integrate them into your financial planning.

Also remember that even after the takeover, you must immediately Cover running costs such as salaries and energy bills from turnover and income must be taken into account. Early consideration of these factors is essential. The liquidity of the daily business must also be integrated into the overall financing structure. It may also be that a minimum liquidity is "sold" in the purchase price and is perceived as sufficient for continuation by the buyer.

10 tips: Closing the financing gap when buying a company without equity capital

1. vendor loan

If you want to buy a business, a vendor loan may be a good option for you. With a vendor loan, the seller of the business provides you with part of the purchase price as a loan. This can help to bridge any financing gap. However the seller also bears the risk of default and usually has a lower priority than banks in case of economic distress of the buyer in the future.

A seller's loan is also an important Show of confidence in external financing partners. If the seller is willing to grant a loan, it shows that he believes in the buyer's ability to continue the business successfully.

2. promotion

Depending on the federal state, there are interesting and sometimes considerable subsidies or supporting measures through the state banks or even the economic development agencies.

KfW Bank

KfW is a special promotional bank of the federal government that offers many programmes to help people start a business. KfW Bank is characterised by good conditions and low interest rates. As a rule, cooperation always takes place with the financing house bank or savings bank.

For a company takeover, there is, among other things, the ERP start-up money.

With the ERP Start-up Money, you can receive funding of up to 125,000 euros. No equity is required and the risk is low. KfW Bank assumes 80 percent of the credit risk.

German Funding Database

The German Funding Database is a federal institution. However, it also provides insight into the funding opportunities of the individual Länder and the entire European Union. Since the programmes are constantly changing, it is worthwhile to check there in detail or to consult a funding advisor.

Guarantee banks

Each federal state has its own guarantee bank. Guarantee banks are designed to support start-ups. They help with loan or equity financing.

They provide state guarantees that can be presented to the house bank as collateral. This makes it easier to obtain a loan.

The equity ratio can be increased through medium-sized investment companies. This is mostly done through typical silent partnerships. The balance sheet is thereby improved and liquidity increased.

The medium-sized investment companies do not work with an explicit focus on returns.

3. points can only be scored with solid prospects for the future

If you want to take over a company, it is not only the financing that matters. It is also crucial that the desired company has a future. This prerequisite can also be fulfilled in individual cases if a company is economically ailing. In this case, tighter framework conditions usually have to be accepted for the financing, because every financier wants to be sustainably convinced that a company in distress will generate stable earnings again in the future.

The decisive factor is that for the there is a demand for the company's product/service in the future. This must be proven. In addition, the buyer should have the appropriate expertise in the field of the company. Employees in key positions must be involved in finding an economic perspective. Only then is it possible to manage and, if necessary, modernise the company in such a way that it can survive on the market in the long term.

4. smooth transfer of business

When a business is transferred abruptly, this can cause "internal" and "external" difficulties. This is because in this case the entrepreneur withdraws in the short term after the sale and the new owner takes over responsibility for the company from one moment to the next. This means that there are there is no training period. Especially for employees, this can seem alienating and increase a willingness to change or even quit. Likewise, banks, suppliers and even customers may sensitively perceive this rapid change as an insecurity of the old relationship.

Therefore, the handover of a business should take place as smoothly as possible and together with the seller. Alternatively, a share sale can secure a slow handover and leave both sides, buyer and seller, in joint responsibility for longer. A smooth handover ensures the continuity of the company and thus also the investment of the buyer.

5. examine the value of the company

The price is an important factor in the sale of a company. This must first be determined. The problem is often that the value of the business to the owner is often perceived to be higher than the actual price a buyer is willing to pay. Subjective influencing factors form a so-called "return on heart and soul", which makes the possible value of the life's work appear higher than the sober factors then portray it resiliently from the perspective of external buyers. The sales price thus has a high emotional and very subjective value for the seller.

Of course, the new buyer does not have this emotional value and does not want to pay it. Therefore, the market price for the company must be calculated. There are several methods for this.

The two most common methods for this are the Income capitalisation approach according to IDWS1 and a rough assessment by the multiple method.

In the capitalised earnings value method, the company's forecasts are included in the calculation. In order to obtain a value that is as objective as possible, many factors must be considered in the detailed analysis. We therefore recommend our online calculator for a first and quick overview. This is based on multiples (multipliers of real transactions) and at the same time makes a very rough classification of the sectors. The simplified, tax-based valuation procedure, on the other hand, calculates utopian values and is to be distinguished from the market procedures. An experienced management consultancy helps to solidly determine the value of a company and at the same time to make it comprehensible.

Take advantage of our expert knowledge from more than 1,000 business valuations. Start your business value assessment free of charge.

KERN free initial consultation on the subject of taking over a company without equity capital
Map with KERN locations DACH and Poland on the subject of taking over a company without equity capital

6. friends and family

It can be difficult if you want to hand over the business to friends and family. Of course, this also has advantages. The entrepreneur knows to whom he entrusts his business and can assume that it is in good hands. However, this can lead to problems when it comes to pricing. Friends and family may expect to be able to take over the business at a particularly favourable price or even to receive shares as a gift. This depends on very individual questions and possibilities and can therefore not be discussed in depth here.

Even if the company is to be sold to an external buyer and friends and family are employed there, it can be difficult. This is because they may expect to be involved in the decision to sell. Depending on the situation, it may also be difficult for the buyer to continue the business if friends and family of the original owner are employed. They often have an emotional connection to the company and are reluctant to change existing structures.

Positive: Friends and family are usually interested in the continuation of the business and will support the new owner accordingly. Nevertheless, both sides must ask themselves objectively whether the professional aptitudes for a takeover are available within the family or can be learned.

A modern online assessment helps here in terms of personal suitability. There, entrepreneurship can be reflected upon and analysed for future acquirers: https://www.mein-unternehmercheck.com/

7. business plan and forecasts for the continuation of the enterprise

The buyer of the company should draw up a comprehensive business plan for his own future. At the latest in discussions with financiers, it is the basis for the possible financing of the purchase price. A Business plan can be ideally combined with the Due diligence Exam be combined. This is because in the purchase review the future acquirer receives all the fine data on the company and can derive reliable plans from it. A business plan shows how the company is currently positioned and how it will develop if certain factors apply.

If a buyer wants to apply for subsidies, the relevant agencies generally require a business plan.

8. field report

9. get business angels on board as co-investors

A business angel is a person who can be both an advisor and a private investor. Often these "business angel" personalities are former entrepreneurs or managers. Their goal is to support new entrepreneurs with their experience and financial resources.

A business angel is usually experienced as an investor and can assess entrepreneurial risk well. Regional circles of business angels offer forums for getting to know each other and this can then result in profitable connections for both sides. Sometimes the support and advice provided by a business angel can be rewarded with a stake in the company to be bought.

10 Silent partnership

Through a silent partnership, a company can increase its equity capital. The general conditions of a silent partnership are described in the Commercial Code in §§230 ff. regulated.

The silent partnership is not apparent to the outside world. In the case of a typical silent partnership, the contribution is shown under debt capital; in the case of an atypical silent partnership, it is shown as equity capital.

Conclusion: Is it possible to do without or not?

In principle, it is possible to take over a company without any equity capital, but it is difficult. This requires an enormous amount of persuasion on the part of the buyer vis-à-vis potential lenders, and the business model itself must also be able to map out stable refinancing. If all parties involved are convinced of the future via the KFW and financial constructs of the respective federal state, supplemented by a vendor loan, this may succeed in individual cases.

A loan for a business purchase can usually only be taken out with a certain equity ratio. The funding agencies also require a certain amount of equity capital.

For small enterprises, 10 - 30 percent equity is usually assumed. For larger companies, the percentage decreases. A good business plan can also help to raise debt capital. The most suitable financing mix is equity capital, subsidies and debt capital.

FAQ

What is important in a company takeover?

It is important to have the appropriate knowledge and skills for the industry. In addition, a detailed business plan should be prepared so that the company can be planned and financiers are given a sense of security.

What subsidies are available?

The state has provided many funding opportunities. KfW Bank is one of them. You can find out exactly which funding is right for you on the homepage.

Is it possible to receive funding without equity capital?

That is rather unlikely. Many funding programmes require a certain equity ratio. Therefore, it definitely makes sense to obtain a certain amount of equity beforehand.

Which bank gives a loan for a company takeover?

You can get a loan from almost all banks and savings banks. However, each bank has its own requirements and conditions. These should be thoroughly compared with each other.