Has anyone bought a small business in Switzerland?

Investing / Others
1

I am currently reading the HBR Guide to buying a small business which is extremely interesting.

I am curious to know if any one of you ever made the step to buy a small business in Switzerland. If yes, it would be very interesting what are the similarities and differences between Swiss and US business landscapes :slight_smile:

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2

Interested in the same.
How are you finding the book?
I might have to buy it!

3

Just curious. You mean buying a whole company ? Or investing in startup?

4

I loved the book. I am also reading Buy then Build which is very promising.

Buying a whole small company. The idea is that most startups fail, but there are plenty of (very) small businesses with a proven business model and existing customers, and many of them are owned by baby boomers that want to retire and sell their business.

From a financial perspective, it looks a bit like this (i am simplifying by removing working capital needs and various fees):

  • There is a business with $3.5m revenues on which let’s say it is making $500k of EBITDA
  • This business will probably sell between 3x and 5x EBITDA (so between 1.5m and 2.5m), so let’s say $2m. The multiple is quite low because at this size there is not much competition from private equity.
  • To buy the business, 1/3 of the purchase price comes from your funds (so 600k from your pocket, or a group of equity partners), 1/3 comes from the bank, and another third comes from a seller note.
  • Over the next 5 years, you use the EBITDA to reimburse the loan and the seller note.
  • You just bought an asset generating 500k of EBITDA every year for a $650k upfront, and you can now work on improving the said business to generate more money.

Basically you are just doing a leveraged buyout at a micro-scale. That’s a faster way to build wealth, but with a bigger commitment in terms of time and efforts.

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5

Very interesting.

I am currently doing my MBA and a group of colleagues (including me) are talking about this.

You are going for established, healthy business, which are too small for PE (as Julianek mentioned).
They could be going through secession problems and would just rather cashout vs seeing their business being closed down.

I do see a problem, especially consider we work in Switzerland: the golden handcuffs are too strong.
With 5/6 years of experience and a masters you are earning 10k a month (gross), which I am not sure how easy it can be achieved with your newly acquired business.

I am thinking from a required capital needed and what you get out of it:

→ No capital needed (regular job) = 120k year salary
→ 600k investment = 500k EBITDA (to make this number comparable to the salary would take some time but serves as a nice guide post)

Then for me the time and effort commitment is the biggest uncertainty.
I sometimes “wish” I was back in Portugal since I wouldn’t mind risking a 20k/year salary to go for something like this but in Switzerland, this is not so clear.

6

Understood. But I think other than financials, one should also have interest in running the business themselves. Right?

Or you are thinking more like buy and then sell again in future ?

7

Hm, I am thinking what businesses that small do. Maybe they do plumbing or cleaning. I would have thought they can’t afford a boss that understands next to nothing of what they do. And if you need to hire a manager that does, that person is also going to eat the profits.

But I think that must be the same everywhere. How is this supposed to be dealt with?

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8

Yes, you will have to run the business, at least in the short run until you have confidence you can hire a general manager. So this is no passive income at all.

In the book they were providing two real-life examples in the US

  • A company renting musical instruments for the local music schools
  • A company testing and certifying the security of the fire hoses for the local fire brigades.

In Switzerland, in the past my wife had an acquaintance owning several solariums in cities outside ZĂŒrich and she was helping him from time to time with collecting the cash registers. I don’t know what the exact revenues where but i’d bet they were around that order of magnitude.

EBITDA is defined as earnings before interest, tax, depreciation and amortization : that means after paying all salaries, including the manager salary (either yours or someone else’s).

I used to think similarly - i am a software developer in a cushy job, with nice colleagues, a comfortable salary (not at a Hoolie-level but still very nice), except there is one problem: the job is completely meaningless and sucking my soul. I thought it was related to my company, but as I was looking for other job offers, i realized it was much deeper: I don’t want to be salaried anymore and jump through someone else’s hoops.
So after 15 years as a software developer (i am 38), i completely see the appeal of switching careers to be the main agent of my destiny.

To be clear, i don’t know if i will end up buying a business (i am litteraly at the beginning of my investigations) but this raised enough of my interest to start investigating it.

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9

The former owner/manager could have simply not paid themselves a good salary because they didn’t want to (tax and) spend that money or they just took dividends instead. A non-owner manager would then demand more. If you do it yourself, there is an opportunity cost for the time invested.

That’s not necessarily a make or brake, but it probably has a visible impact on the bottom line.

10

Makes total sense. Personally I don’t know if this is something for me or not. But if an opportunity come across, I would be definitely be looking into it seriously

11

You cannot pay yourself a low salary and high dividends. A big part will be requalified by the AHV-Ausgleichskasse if you try to do that.

But before you buy a business you would do all the due-diligence anyways.

12

Is remicom.com a good platform for those wishing to see what is for sale? Is there something better?

13

I‘ve seen cases where the buyer needed 20% in own funds, 40% was covered by the bank and 40% by the sellers loan. 4-6 years to pay back the borrowed capital and then off you go.

Best thing is: There is a huge amount of baby boomers in Switzerland that won‘t be able to find someone to take over the business. 650k small businesses within the next 10 years. It will be a bloodbath.

Best time to buy a business (or multiple).

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14

That’s cool!

Do you know if there are some banks that specialize in this kind of financing, or is it a very common practice in most banks?

Is there any best practice you would recommend for the would-be acquirer from a banking point of view?

15

650,000 businesses ?

16

Unfortunately it’s not really part of my job, so I don’t have that many details. As far as I know UBS and CS were always good banks to check out for something like that. You can also get into contact with the bank the seller was working with for the last years/decades. They should be interested too and they have all the financial statements of the company.

I think it would make sense to get offers from 3 different banks and then compare it. Interest rates won’t differ that much (I mean even a 1% difference won’t really matter) but the provided loan might differ hugely.

And your example is a very real one. You could become a multimillionaire within 10 years if all goes well. Or lose everything of course :smiley:

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17

I had the wrong number in mind: Nachfolgeproblematik in Schweizer KMU (Studie)

Seems to be 90-100k businesses. The 650k were probably the total amount of KMUs in Switzerland.

18

thanks.
Since we have around 9 million people in CH, 650K businesses would have been too many.

19

I too find buying / operating a business an interesting proposition. Although I currently don’t have enough (working) experience and obviously capital.

Some thoughts: As already mentioned, lots of business owners will be retiring and thus looking to sell. IMO there is also a lot of consolidation opportunity for (very) small companies (5-10) employees. I also think that a lot of business are badly run, no knowledge of financial planning / management, just making decisions based on how much cash is in the bank. Interesting financing options are available such as earn outs or vendor loans, which limit the up front equity investment.

Some businesses are very dependent on the current owner regarding network, contracts, know-how, leadership. Ideally you find a partner who knows the industry (if you don’t).
Risk shouldn’t be underestimated though. Small businesses can be affected much worse by shocks (dependence on key clients / suppliers, employees leaving, accidents, fraud, economic cycle
)

Here a link to a broker platform for businesses (have seen some completed deals on linkedin): Firmenangebote | Business Broker AG

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20

The flow as described by Julianek is spot on. I looked into this as a “side business” but gave up when I finally realized I would have to hire a “CEO” i.e. a really good operator OR invest time myself which I don’t have. since them I’ve rather looked into buying a small cash flow digital business but haven’t found anything attractive.

It might be interesting to have a small get together to brainstorm ideas over a coffee

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