How to buy a company in Spain (without getting a headache). (part 3 of 3)
How to deal with a Spanish business owner who wants to sell
In all fairness, there is something we must admit in defense of the rather stubborn attitude of Spanish business owners. Most brokers, advisors or intermediaries working in Spain are not very professional (to say the least …). Quite a number of them try to charge sometimes outrageous upfront fees never to be heard from them again once an owner has paid. Or they provide a totally inadequate “valuation service”, overvaluing a company to please the owner and have him sign an exclusive representation contract that guarantees them a percentage over the sale and then sit and wait. The more listings the better for them.
When you are really interested in buying a business for yourself in Spain, you need to take the following steps (for the first 3 steps see here):
4.- Ask for a justification of the asking price
Better still, ask if there is a valuation report made by an external party: valuations done by the company’s own bookkeeper are not to be trusted. Most representatives do not have any qualifications to do a valuation, so check their credentials. You cannot claim to get a copy of a valuation report (although you can always ask for it unless you are the one that is ordering to get one), but knowing that an asking price is backed-up by a serious valuation obviously gives you a better feeling about the owner you are dealing with.
It is also important to ask for the base of a valuation: are historic results being used or are future projections used to justify the asking price. In small and medium sized businesses, the valuation should be based on historic results. The future belongs to a new owner and he or she should not be asked to share their future results, obtained with their efforts, with the current owner (unless otherwise agreed off course by the buyers)
If there is no valuation report to back up the asking price, ask the owner if he would object that you order a valuation on his company. Since he has to cooperate with the appraiser, his permission is needed, but most will agree as long as they do not have to pay for it. They do not realize that they will lose control over the negotiations about the price. (remember that a Spanish business owner rather saves himself a penny instead of spending it to get a result that would generate him a lot more than just that penny)
5.- Financial records
Ask if the financial records (bookkeeping and tax declarations) are up to date and include all income and expenses. Make sure that the owner understands that no deal can be expected if the financial records cannot be verified or until you accept any discrepancy.
Although you are not in a position to ask for the documentation yet, you want to make clear to the owner the importance of this issue.
6.- Other general and commercial data
Ask whatever else you need to know on the general and commercial side of the business, so you are sure that you understand the working of the business. A serious seller will have a list of issues (clients, providers, assets, employees) and its documentation ready.
Make sure to ask for the reason for selling by the current owner.
During the above mentioned process and steps you can actually work the internet and get everything by email. Up to this point, there is no need to visit the actual business, but there is no substitute for a visit and face-to-face meeting with the owner. Thus, if everything goes well up to this point, you should schedule a visit.
If you like the business and want to start negotiations, this is the moment to ask them to go ahead with a valuation. It will make you look very professional and you give the owner the impression that you do not wish to negotiate his price, that you only want to check it. Make sure that he does understand that you are going to base any offer for his business (if you are going to make one) on the results of that valuation.
This is also the moment that you can detect if the business owner is genuine or not: if the owner is not selling a viable business for a good reason, it is a safe bet that he is trying to get rid of a money losing operation.
Click here to get part 1 of this series of three articles, and here for part 2