How to buy a business in Brazil
Buying an already established business may be an interesting option for who does not want to start everything from scratch. Here comes a guide that will explain the procedures on how to purchase a company in Brazil.
In Brazil, starting a business can be very time and mind consuming, especially for foreign entrepreneurs that are not used to the Brazilian business procedures. An alternative is to buy a ready business, what will skip a lot of the planning steps. That is because, the company already has a known background, which alleviates the uncertainty of the investment. Also, you can rely on an already mounted structure, guaranteed clients and an estimated revenue.
But why would you buy something that someone is trying to get rid of? Well, a lot of the businesses that are for sale are going bad, so it is normal to be suspicious. But some businesses can still be profitable, the owners might be simply wanting to retire. Other reasons for selling can include conflicts between business partners or just giving up. It is not uncommon for business owners to sell their companies because they did not identify with the work, they realize that is not “their thing”.
Running a business already on its way may speed things up, but it requires the same precautions as starting a fresh one. Basically, the procedures to buy a business in Brazil can be summarized in the following steps.
1 - Making the choice of the sector and the size of the business
Of course, buying a business that suits you is always the best choice. The entrepreneur must possess the knowledge necessary to run the company. But it is also important to analyze the market situation of the sector, if it is in decline or has chance of growth.
As for the size of the business, that depends on some factors such as: amount of money available to invest, the number of employees, what is the turnover, location, local market, prices and forms of payment.
2 – Search
There is a lot of businesses for sale in Brazil. The offer is large, especially in the big cities, like São Paulo. You can check out some opportunities in the following medias:
- Primeira mão
- Estado de S. Paulo
- Folha de São Paulo on Sundays
Aside from consulting these media, you can contact a business broker or do your own research, by visiting locations or asking people around if there are good businesses for sale.
3 - Meet the seller of the offer
Of course, the owner knows the business better than you do. At this stage, it is important to ask him why is he selling the company, what is the revenue, who are the clients etc. It is even interesting for the buyer to spend a few days watching the company from inside, observing its working flow and taking notes.
4 - Start the process of "evaluation"
In this step, the buyer and the seller of the business will get a mutual analysis involving the purchase. It is important for the buyer to check the following list of documents, to make sure that the business is clear on the market:
- Clearance Certificate of Federal and Municipal taxes (Certidão de Tributos federais e municipais)
- Clearance Certificate of INSS ( Certidão negativa de INSS)
- Certificate of FGTS regularization (Certidão de regul. do FGTS)
- Certificate of Civil Actions (Certidão de Ações Cíveis)
- Certificate of Protest (Certidão de Protesto)
- Certificate of Execution (Certidão de Execuções)
- Certificate of Labor Claims (Certidão de Ações Trabalhistas)
- Certificates criminal partner at the firm (Certidões criminais dos sócios da empresa)
- Certificate issued by the State Board of Trade in its entirety ( Certidão de inteiro teor emitida pela Junta Comercial do Estado)
- Regularity of the company's headquarters (Regularidade da sede da empresa)
- Lease of the property (Contrato de locação do imóvel)
- Articles of Associations (Contrato Social)
- Card CNPJ (Cartão do CNPJ)
- Taxpayer Registration Card Furniture (Cartão de Cadastro de Contribuinte Mobiliário - CCCM)
- Five recent statements of Income Tax of Legal Entities
- Adipam (if it is a trade business) (Adipam)
- Annual Social information report for the last five years ( RAIS dos últimos cinco anos)
- Accounting books (Livros contábeis)
That is a really long list, but it is highly recommended to check if these documents are okay, before signing anything. Hiring an accountant to localize and verify the documents is the best option.
5 - Sign Letter of Intent (Carta de Intenções)
Although the Letter of Intent contains a certain number of rules for the safety of both the buyer and the seller, it is not a legal document. Even though it is not an official contract, the Letter of Intent has a lot of strategic points, so it must be written and corrected by a lawyer expert in business contracts.
6 - Due Diligence
Due Diligence is probably the most important of all steps. Here, the buyer will evaluate the targeted company or its assets, and make sure to not buy assets that are associated with other liabilities or responsibilities that is not to acquire assets that need the approval of others. There are several issues to consider regarding: Human Resources, Industrial property rights and intellectual, Movable and immovable property, Implementation contracts continued, Short-term credits and Permissions.
7 – Preparing and signing the contract
The amount requested by the owner of the company is not always consistent with the market or what the business can offer. One way to know the real value of the project is to calculate how much the company will generate in profit for the next five years, based on the previous years' intakes.
A more thorough examination includes revenues, brand value, the potential customer base. Then, a balance is made regarding the price. But generally, the contract of sale contains:
- Terms of the sale
- The amount payable
- The form of payment
- The set of tangible or intangible property that are
After the contract is signed, the buyer can take the business ownership.There will also delete clauses to deal with situations of non-compliance: hidden costs in the company, not paid on time, etc..
8 - Payment
It is kind of hard to get a Brazilian fund to finance your purchase, especially if you are from abroad. Good news is that, most business owners will sign over the business for a down payment of 50%, and let you pay the rest of it in a determined number of installments. That way, you can pay it from the takings. This informal form of credit makes it easier to buy businesses in Brazil.
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