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How to buy a company in Spain (without getting a headache). (part 1 of 3)

Small business owners in Spain

It is curious to see how small business owners in Spain confront the process of selling their companies. Most owners have been the founders of their family enterprises and have worked a lifetime to build and maintain the business. Since Spain, over the last 30 years, has the lowest birthrate in Europe (as a matter of fact, in the world!), the population is actually shrinking (true: if it was not for the immigrants the actual population over the next 10 years would decrease by 10%!) and many owners simply do not have a successor. Or, if the family business has been successful, the children went to college and have elected other careers, leaving the family business without succession.

Since planning ahead is not very commonly practiced in Spain, most aging business owners wait until the very last moment before deciding what to do with their business. The business is often already in decline because of a lack of recent investment and an owner who just couldn’t keep pace with modern times.

When he finally decides to take action (often pressed by friends and family), he starts asking around, most of the time with his longtime advisors (the external bookkeeper or a lawyer friend) or a friend or member of the family. Although almost all small businesses in Spain use external bookkeepers, small businesses employ very little outside consultants or experts. There is no habit in hiring an expert for services that could be done better by a third party: the independent business owner prefers to keep everything close to his chest, either to hide his “trade secrets (often related to some form of tax evasion)” or to hide his particular ways of managing his business.

As mentioned, the one exception is bookkeeping. The external bookkeepers in Spain (“gestorias”) are basically employed for one single reason: to fill out the enormous amount of paperwork for reporting and tax purposes,that is required by law, and to do it in a way that no, or as little as possible, taxes will be paid. Keep in mind that the Spanish businessman’s mentality to earn money is first and foremost: not to spend any money of which he is not sure what the benefit will be for him; he rather saves a penny in cost instead of investing in a sales opportunity that might earn him a pound.

Back to the businessman who needs to sell his company. He has very good reasons to want to keep the sale of his business a secret: in Spain it is still seen as a failure to sell your business and obviously the business owner does not want to share his “trade secrets” (read: tax evasion) with people he doesn’t trust (and trusting other people is not a cultural habit in Spain either!)

Since bookkeeping is not done to keep the owner of a small business informed about the performance of his business (but as a tax evasion tool), most business owners do not have any trustworthy records to show potential buyers on how the business has been doing in the past.

Nor do they have a real clue … most businesses are purely cash flow driven (remember: planning is not a very common practice in Spain).

Therefore, when a business owner needs to sell his business, this is where he stands: the bookkeeping does not show any real results, the last years’ performance normally has been dismal and he does not want to invest anything in a sales process if he is not guaranteed the result (selling his business at an exorbitant price). He is willing to work with brokers only when they work for a success fee and he establishes the price for his business: the brokers’ percentage has to come on top of that.

All he does is place some ads (on websites that offer inserting ads for free, sure enough) and wait until someone asks him what he wants to know about the business. Since he has not prepared anything, his standard answer is: come and see me and we talk.

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