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 FormationTransfer of Ownership
Sole TraderPersonally liable for business debts or lossesReport profits or loss on personal tax returnEasy and cost-effective to startNo
PartnershipPartners are personally liable for debts or losses Profits are taxed once and split among partnersEasy and cost-effective to startBased on the partnership agreement
Limited liability partnershipLimited personal liability for debts or lossesProvides a return on investment outlined in the partnership agreement More expensive to create than a partnership Yes
Limited companyCompany owners have liability protectionTax is based on the structure of the businessMore expensive to create than a partnership or sole trader Yes
FranchiseLiability is dependent on the franchise agreementFranchise fees are tax-deductible Time-consuming process compared to other structuresYes

 

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:

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

 

My New Venture is here to offer expert advice on your entrepreneurial journey, to increase your chances of success.

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Summary
How to buy a business in the UK
Types of business structures
The risks involved in buying a business
Buying a business checklist
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