1.3. What are business plans needed for?

Company acuisition

Buying and selling companies is a normal occurrence in business life. Company exchanges - on the internet, at chambers of commerce, at associations - document this. The purchase of a company is a "transaction" - like many other transactions - with the special object that the product is a whole company.

The purchase of a company represents a takeover in the sense of a company succession by new owners. This can take place through active cooperation of the buyer and new owners; this can take place through a new managing director taking over the business as manager.

There are many reasons for buying a business. A founder can acquire a company in order to start his own business. An investor can buy a company in order to generate economic growth. In the case of a company purchase in the context of a merger, two companies enter into an economic unit. This can take place within the framework of a takeover and payment of a purchase price. In a "hostile takeover" (only for public limited companies), the buyer acquires the majority of the shares on the stock exchange against the resistance of the owners.

When buying a company, an economic valuation of the company is absolutely necessary. The economic valuation (due diligence) is the basis for purchase price negotiations. The purchase of a company can take the form of a one-off payment, annuity, instalment or permanent burden. The purchase agreement should establish clear ownership from the outset. The buyer should obtain free power of disposal over the enterprise.

In the case of a purchase against a one-off payment, the buyer must hand over the purchase price to the seller on a closing date. The buyer's capital requirements must be planned accordingly.

Financing of the purchase price can be secured through equity and debt capital. If the potential buyer does not have sufficient capital to settle the purchase price through a one-off payment, the purchase can be agreed against recurring payments (instalments, annuities, etc.). Then the seller takes over the financing function himself instead of a bank. Which type of payment is chosen also has tax implications. An accountant or tax advisor should be consulted for this.

Buying a company out of insolvency can be a favourable way to acquire a business and secure a market entry. Acquiring a company out of insolvency means entering an extremely difficult situation. The business management perspective must answer questions of legal transactions, employment relationships, the financial situation and especially the market. A differentiated analysis is always necessary.

Buying a company only makes economic sense if the company to be bought earns the purchase price itself within a defined period of time. This means: the company to be bought must earn the purchase price itself. The economic risk of buying a company lies precisely in this fact. If the company to be bought cannot raise the current debt service from the sale, the owners must provide additional external financing. If this does not succeed in the long run, insolvency or resale cannot be ruled out.