Blog

Acquiring a Closing Business: A Strategic Opportunity for Entrepreneurs

When a business owner can no longer support their company, it opens up a unique opportunity for aspiring entrepreneurs to step in and acquire an established business. While starting a new company from scratch comes with its own risks and rewards, acquiring a business that is on the brink of closure can offer distinct advantages—if handled correctly. In this post, we’ll explore the key steps, potential benefits, and risks of acquiring a closing business, and how entrepreneurs can turn these opportunities into long-term success.

Why Buy a Closing Business?

Acquiring a business that is closing down offers several benefits over starting a new one from the ground up:

1. Established Client Base: A closing business often comes with a loyal customer base, providing immediate cash flow and reducing the time and effort needed to establish market presence.
2. Existing Infrastructure: You’ll inherit a business with existing infrastructure, such as facilities, equipment, and trained employees. This means you can hit the ground running without the initial setup costs.
3. Brand Reputation: The business may already have an established brand reputation that you can build upon, saving you time and money in marketing efforts.
4. Negotiation Leverage: Since the seller may be looking to exit quickly, you might have greater flexibility in negotiating favorable purchase terms.

Common Reasons a Business Closes

It’s important to understand why a business is closing before considering acquisition. Common reasons include:

• Owner Retirement: The current owner may be looking to retire and has no successor in place to take over.
• Financial Troubles: The business could be struggling with profitability or debt, but might still have potential for recovery under new management.
• Burnout: The owner may no longer wish to continue running the business due to stress or personal reasons, leaving room for someone else to take the reins.

Each scenario presents unique challenges and opportunities, so understanding the root cause of the closure is critical to determining whether the business is a good investment.

Steps to Acquiring a Closing Business

1. Find the Right Business Start by identifying businesses in your industry of interest or geographic region. You can find opportunities through business broker networks or platforms like KMU Next (for German-speaking Switzerland) and Relève PME (for French-speaking Switzerland). It’s essential to have a clear idea of the type of business you’re looking for and its size to avoid mismatches.

2. Conduct Thorough Due Diligence Due diligence is crucial when acquiring a closing business. This process involves reviewing the company’s financial statements, contracts, legal obligations, and overall health. Some key areas to focus on include:

   • Profitability: Is the business currently generating profit, or will you need to turn it around?
   • Debt and Liabilities: Make sure you understand the full extent of the business’s debts and outstanding obligations.
   • Customer Relationships: Will the current customers stay with the business after the ownership transition?

3. Negotiate the Deal Once you’ve completed your due diligence, it’s time to negotiate the purchase terms. This includes determining the purchase price, payment terms, and seller responsibilities post-sale (e.g., helping with the transition). If the business is struggling financially, you may be able to negotiate a lower purchase price or have the seller finance part of the deal.

4. Choose an Acquisition Structure There are two main ways to acquire a closing business: buying the company outright or purchasing specific assets like inventory, equipment, or intellectual property. An asset purchase allows you to avoid liabilities tied to the business’s past operations, making it a safer option in some cases.

5. Transitioning Ownership A successful handover is crucial to maintaining business continuity. Work with the current owner to ensure a smooth transition, introducing you to key stakeholders such as employees, customers, and suppliers. This period also allows you to assess any immediate operational needs and implement improvements where necessary.

Potential Risks of Acquiring a Closing Business

While buying a closing business offers many advantages, it’s not without risks. Some challenges you may face include:

• Unseen Liabilities: Without thorough due diligence, you may uncover hidden debts or legal issues after taking over the business.
• Customer Retention: Some customers may have been loyal to the previous owner and may choose to leave following the ownership change.
• Reputation Management: If the business has been underperforming, you may need to rebuild its reputation within the market.

Financing Options for Buying a Closing Business

Purchasing an existing business often requires a significant upfront investment. Here are some common ways to finance the acquisition:

• Traditional Bank Loans: You can apply for a bank loan to cover the cost of purchasing the business and any operational improvements needed after acquisition.
• Seller Financing: Some sellers may offer to finance part of the purchase price, allowing you to pay them over time.
• Investor Partnerships: Consider partnering with investors who can provide capital in exchange for a stake in the business.

Is Acquiring a Closing Business Right for You?

Buying a closing business can offer a quicker path to entrepreneurship, but it’s essential to assess whether this type of investment aligns with your experience and resources. Ask yourself:

• Do I have the expertise to manage and grow this business?
• Am I prepared for potential challenges, such as revamping operations or marketing strategies?
• Is the market still favorable for this type of business?

By carefully evaluating the business’s strengths and weaknesses, you can make a smart decision that minimizes risk and maximizes potential for long-term success.

Conclusion: Turn a Closing Business into a Thriving Enterprise

Acquiring a closing business offers a unique opportunity to take over a company with an existing customer base, established operations, and immediate revenue generation. However, it’s essential to conduct thorough due diligence and negotiate favorable terms to ensure a smooth transition and successful long-term growth.

At Credema AG, we assist entrepreneurs in navigating the complexities of buying a closing business. Our team of experts provides guidance on due diligence, financing, and ownership transitions to help you make the best possible investment.

Ready to take the next step in your entrepreneurial journey? Contact Credema AG today to learn how we can support your acquisition.

Sources:

• KMU Admin - Official Portal for Swiss SMEs