Buying an existing business can be an easier way to start a business in France, as there is an existing customer base and a certain level of income already generated. However it can also be a mind field to assess the real value of the business, know which legal documents you should be getting a copy of and the minute details you should consider.
In order to guide you through this maze, I have written 10 practical tips for buying an existing business in France.
1. Get a copy of the business accounts or bilan
As a potential buyer, you are entitled to get a copy of the business profit and loss accounts for the last 3 years. You would usually get the last two bilan, knowing that each bilan will mention the previous year’s figures. If the accountant has not produced this year’s profit and loss account, ask him to confirm the turnover so far. This will enable you to check if the situation has worsened, which quite often happens once the decision to sell has been made.
2. Get a copy of the bail commercial
Bail commercial is the legal document ruling what can and cannot be done within the premises. This contract binds you with the owner for 9 years and can be ended or résilié every 3 years, hence bail commercial being referred to as a 3-6-9 contract. A bail précaire, also sometimes called a bail a l’américaine refers to a one year renewable contract, which may damage your business, if you had to move out just after one year.
Check when the contract is up for renewal, as the rent may go up or the owner may want his premises back. Also check which activities can be carried out on the promises. Tout commerce allows any activity, others are more restrictive with for instance commerce de bouche. A broad description will also make it easier for you to resell the fonds de commerce or pas de porte in the future.
3. Ask for a list of the equipment and stock included in the sale
You would expect all the equipment you saw on the site visit to be included in the selling price, but this will avoid any bad surprises. This is particularly true for restaurants, shops, workshops and hotels. This is an opportunity for you to negotiate the selling price and to reduce the amount of stock you may take over. No need to take huge amounts of old stock that you will never get to sell for a reasonable price.
4. Visit the building with an artisan
Whether you plan to do some building work or just decorating, it is best to visit the site with a builder, who will give you realistic quotes for the work needed. This will also be an opportunity to identify any existing issues with the building: structure, damp, heating, kitchen not up to standards, etc.
5. Draw a provisional plan
Draw a provisional plan with the help of an accountant based on the existing business, BUT add new figures to reflect your personal circumstances. Add any new investments required (equipment, stock, decorating, marketing budget, cash flow to cover 2 or 3 months of expenses). Include the minimum income you will need to live. Reduce the existing turnover by 10 to 20%, which is the average reduction observed when a business is taken over.
6. Find out why the owner is selling
Retirement age, going back to the UK, moving to a different area in France, divorce… there may be many reasons for selling a business. There will also be an official and a non official reason : not profitable, moving to newer promises nearby, big supermarket opening on your doorstep, new competitors arriving on the market, new regulations impacting on the business, etc. Ask around when meeting with banks or accountants if they know this business. You don’t want to find out one month after taking over the business, that the former owner is setting up 10 miles down the road.
Try to add a non-compete clause or clause de non concurrence in the compromis de vente. It is quite common for instance to ask a heardresser not to set up a new business within 10 km for several years.
7. Check if you can benefit from any financial help
There are many schemes to support entrepreneurs in France and especially when taking an existing business with the transmission- reprise scheme. Check with your Chambre du Commerce or Chambre de Metiers, as they may also have a list of businesses for sale. Financial help could be an interest free loan (NACRE), a guarantee or help from the Conseil General to maintain rural shops.
8. Check the local market trends
Meet up with your local Boutique de Gestion, Chambre du Commerce or Chambre de Metiers, as well as a couple of accountants to get a different point of you on how your sector is doing and why the business is up for sale. You might be surprised about how much you will learn, especially about the unofficial reason for the sale.
9. Go and see several banks
Self-financing a business is not always the best option, as you may under invest or not have enough cash flow to develop the activity. Banks will expect you to invest about 30% of the total investment. Institutional guarantees such as OSEO or Sofaris may be taken to guarantee your business loan. Nantissement de fonds, i.e a pledge taken by the bank on the business could also be requested, i.e if the business was to be sold, the bank listed on the nantissement would be the first one to get its money back.
10. Where can you find some businesses for sale in France
Here is a list of well known web sites where you will find some businesses for sales.
Also check with your local estate agents, Chambre de Commerce and Chambre de Metier, that will keep a list of businesses for sale as part of their transmission-reprise campaign.