business 'take over'/'buy out'

[ralf-nz]

What do you have to pay attention to when taking over/buying out a business here?
Who has done so and can share some experience? It is not about starting a business or buying one as an investor. A colleague of mine and I have been offered to continue with the business we are employed by now as the current employer wants to retire.

[JandM]

That sounds interesting, ralf. Good luck.

[Super_BQ]

A lot of variables at play. It depends on the nature of the business. If you're paying a considerable amount of $ for the goodwill of the business (if there is any? unlike say a restaurant where anyone can open up to take your market share away). Quite often it depends how keen and organised the new owners are. Personality is one key issue that can never be replaced (ie. customers like to deal with that one person 'the owner' and if they leave, so do the customers). This is all above what accounting doesn't show. Then there are issues if the retired person changes their mind and opens up business in another are of town or down the street. If there's some real $ involved, better ask the lawyers.

[ralf-nz]

That sounds interesting, ralf. Good luck.

interesting - yeah?!? will see - but thanks!!

[ralf-nz]

The business - of course (?!) - is the engineering consultancy I and my colleague are currently working in. There will be a transition period of some kind (what exactly needs to be determined). The retiree is old enough not to change his mind. The opposite, he wants us to continue 'his child'.

I'm thinking more about accountant's/legal advice than economical/engineering.

[Manks]

I've been having these discussions for the best part of a year as one of the partners in my firm is retiring and wants to sell her shares in the business. However we are a service business and she holds her clients very close - meaning retention is going to be a big issue when she leaves, unless a comprehensive handover has taken place. Therefore I don't believe the valuation in a consultancy business can be primarily focused on past revenues. The goodwill that Super BQ talks about is the biggest factor, and that often walks out of the door with the retiree. If you base a value on past revenue, you may find yourself paying for stuff that are worth nothing once the old owner is gone.

[James 1077]

You need to get some proper professional advice on values as the ranges vary depending on how you value it (i.e. cash streams, earnings multiples etc).

In general you do not want to buy shares in the business but want to purchase its assets and (if necessary) liabilities. The reason for this is that an asset purchase means you, legally, start anew, a share purchase means the history follows you (so if you get a tax investigation or get sued then the company remains liable).

For a consultancy the value is in the contacts and customers - so make sure you put in a clause that stops the current owner from setting up again and taking them elsewhere (you could put him on an "earn-out" style agreement where he gets more money if you hit pre-agreed targets ... which would encourage him to use his relationships to keep the business with you).

But I would say to get some advice from some accountants (due diligence and valuation) and lawyers (drafting agreements and structuring) as the risks are big if you get it wrong but benefits are great if you grow the business.