How To Buy A Business In The UK
Are you thinking of entering a new market or growing your current business? If the answer is yes, keep reading.
Before buying a business, it’s important to consider the various factors that can influence your decision on making the purchase or not.
Whether you purchase stocks or buy a business itself, carrying out thorough market research and reviewing your position is crucial for a successful takeover. Buying a small business has major benefits and financial gain, it might just be the right step for you in your business journey.
That’s why we’ve created this guide to help you learn everything a UK small business owner, entrepreneurs, and tradespeople need to know about buying an existing business.
The Advantages of Buying A Business
Unsure why you should buy a business?
If you are considering buying a business rather than starting your own, we’ve got good news! The process of purchasing an existing business presents many perks.
Not only can you eliminate the hassle and drawbacks of getting a start-up business off the ground, but you can also avoid those early years where many businesses fail.
Here’s why you should consider buying a business:
Effectively an existing database of customers and business contacts
Capitalise on brand awareness
Employees who are already familiar and trained with the business
Immediate cash flow and income from day one
Secure funding and attracting investors are easier
Use the financial history to manage and monitor expectations and goals
Acquire trusted suppliers, equipment, premises, and stock
Lower your risk of business failure
Types of Businesses For Sale
If you are unsure of what type of business structure you should take over, it’s important to consider the advantages and disadvantages of each.
Whether it’s a sole proprietorship or a limited company, understanding the various legal requirements and formation of each business structure will help you make the right choice.
Use My New Venture’s comparison table to guide your choice on which business structure makes the most sense for your next business move.
| Business Structure | Liability | Taxation | Formation | Transfer of Ownership |
|---|---|---|---|---|
| Sole Trader | Personally liable for business debts or losses | Report profits or loss on personal tax return | Easy and cost-effective to start | No |
| Partnership | Partners are personally liable for debts or losses | Profits are taxed once and split among partners | Easy and cost-effective to start | Based on the partnership agreement |
| Limited liability partnership | Limited personal liability for debts or losses | Provides a return on investment outlined in the partnership agreement | More expensive to create than a partnership | Yes |
| Limited company | Company owners have liability protection | Tax is based on the structure of the business | More expensive to create than a partnership or sole trader | Yes |
| Franchise | Liability is dependent on the franchise agreement | Franchise fees are tax-deductible | Time-consuming process compared to other structures | Yes |
Things to Consider Before You Buy A Company
What is due diligence and why is it so important?
Due diligence for buying a business refers to the process of collecting and analysing data and information before continuing a transaction. This means that you protect yourself from any legal liability, loss, or damage.
This process not only helps investors and companies understand the nature of a deal but highlights any risks that might be involved. Legal due diligence is essentially the legal research and background knowledge you carry out to make informed and successful business decisions.
Investing without carrying out financial due diligence puts yourself at risk because without a solid review or audit of a business, you will not have a clear understanding of relevant facts and financial history.
Due diligence can come in many forms, commercial due diligence determines the commercial appeal of a potential business. This means your choice to buy the business is based on attaining a target strategic fit.
Negotiating with a clear view and in-depth understanding of a business’s value is critical for securing viability before making a purchase.
The process of due diligence for selling a business also applies. As a business owner, you must comply with a buyer’s request for data and documents to ensure all decisions and potential liabilities are clearly outlined.
Due diligence is equally important for a seller to uncover the correct market value for your business, confirming your financial integrity, and brand position.
Business Finances
There is no better way to ensure the longevity and success of a business purchase than by ensuring you have a clear understanding of the financial performance of the business.
Financial history and expectations are vital to uncovering unrecorded liabilities, forecasting the future cash flow, and making well-informed decisions.
From debt information to potential subsidiaries, evaluating financial performance before purchasing a business will result in many future benefits and business security.
Make the right steps and find everything you need to know about a business’s finances through these trusted resources:
- Companies House can provide buyers with company reports, annual returns, and up-to-date accounts
- The Business Finance Guide
- Azets UK
- RSM UK
Market Conditions
Understanding your market can propel your chances of building a successful business.
Not only will you gather invaluable information about both your customers and competitors, but thorough market research can help you reach new customers easily. As a business owner, you will recognise the value in tailoring your product or service to meet consumer wants and needs.
The most effective way to establish and implement a marketing strategy is by knowing which audience to target and how. Checking other businesses and their value elevates your position, products, and brand optimally.
Company Operations
Do you know how to avoid low profitability and poor growth? Continue strong operations management throughout the business.
Managing and monitoring operations by implementing a strategy for dealing with problems or compliments helps to effectively control, resolve, and supervise not only day-to-day operations and staff, but customers and brand image.
Here are common operational issues that may impact your business:
Company procedures
Lack of performance monitoring
No business planning
Unstable cash flow
Operational locations
Staffing information
Management team structure
Stock inventories
Legal Paperwork and Insurances
Responding to competition
Growth Potential
Forecasting revenue and growth before buying a business will create a level of security when making informed business decisions.
The growth potential of your business must be profitable and appealing to develop data-driven strategies. This means that the growth projections can clearly influence the future of your business, spotlighting room for improvement or roadblocks.
The Risks Involved in Buying A Business
Although buying an existing business can eliminate uncertainty and various initial setbacks, it can come with some risks. To avoid disappointment and an unsuccessful purchase it’s crucial to do your research on every aspect of the business.
Here are common risks you should avoid:
The legal principle of ‘Caveat emptor’ which is a Latin phrase for ‘let the buyer beware’ means it is the responsibility of the buyer to be aware of any unforeseen defects or problems with a business.
Performing due diligence before buying a small business is crucial to avoid the burden of problems or losses. Due diligence is entirely in the buyer’s control which means an appropriate assessment of the business is your obligation as the buyer.
Business sellers will always aim to maximise the value of their business. This means you must accurately assess whether the value can be backed by credible sources, data, and information.
Buying a Business Checklist
Buying a business is an exciting yet daunting experience that can effectively improve your business portfolio. Before you make the purchase, check out our tips for buying a business below.
Do Your Research
Basing your purchase on credible information that has been effectively analysed and taken data and research into consideration, makes a successful transaction.
The value of fully researching any opportunity that arises in your business journey not only protects you in the long run but prevents investment risk. Having an in-depth understanding of a business’s culture, history, and customer base is the ideal starting point for all business purchases.
Prepare Your Valuation
The value of independent and discrete valuations is essential in your business buying process. Evaluating the fair value of a business, appraisal of discrete aspects, and individual assets plays a key role in securing and continuing the transition. The various ways to value a business make it important to carry out your own assessment to avoid disputes or future disappointment.
Whether it’s a basic industry valuation or discounted cash flow analysis, the valuation process is fundamental in determining if you’re making the right choice.
Talk to Your Bank
Have you spoken with your bank?
First things first, it’s important to seek financial guidance. Before making an offer to purchase a business you must ensure you have the right finances in place. If you’re planning to borrow money from a bank, it’s best to arrange a call or an appointment to discuss interest payments, terms and conditions, costs involved and budgets. Reviewing your options before you make the purchase protects you in the future.
Make Your Offer
An offer must be accepted to continue the process of confirming a contract. Ensuring your offer is backed up in writing, is specific, and complete, makes the first step towards creating a contract easier with no room for error.
These are the elements of a valid offer:
- Communicated offer
- Committed to making the offer
- Definite terms
- Other issues
Negotiating The Deal
Negotiating, the strategic discussion to find an accepted purchase value, is inevitable and should benefit both parties.
Negotiating with a seller may seem daunting, that’s why we’ve collected out top strategies for a win-win outcome:
- Determine mutually beneficial agreements
- Don’t backtrack
- Consider your preferred closing date
- Use your research and resources to make informed statements
- Take into consideration the market
- Ensure the exchange is professional
Signing the Deal
The formation of a contract is a result of the offer, acceptance, consideration, and intention to create legal relations. Business purchase agreements are legal contracts that transfer ownership of a business and must be thorough and well written.
Closing the deal and confirming your final contract means all the key provisions are covered and both parties are content with the final purchase.
Getting Professional Help When Purchasing A Business
Buying a business can be time-consuming and highly technical which means it’s important to seek help and guidance from credible and experienced professionals.
Professional advisors can support you in making the process less daunting, legal, and successful. Depending on the complexity of the business, appointing a fully certified expert can make your experience as smooth as possible.
These professionals can help you make the right purchase:
- Accountants
- Commercial solicitors
- Commercial property surveyors
