According to research, buying an existing business is the best route to entrepreneurship in the UK. Not only does it provide the opportunity to take advantage of an already established customer base and brand recognition, but it also allows you to benefit from the knowledge and expertise of the previous owner.
Additionally, buying an existing business typically requires less start-up capital than starting a new business from scratch. And with the right due diligence, it can be a relatively low-risk way to become your own boss. Of course, there are also some challenges to consider when buying a business. It’s important to carefully evaluate the financial health of the company, as well as any potential risks associated with the industry or sector.
But if you do your homework and find a sound business that’s a good fit for your skills and interests, buying an existing business can be a smart way to achieve your entrepreneurial dreams
How to buy a business in the UK
If you’re looking to buy a business in the UK, there are a few things you’ll need to take into account. First and foremost, you’ll need to have a clear idea of what kind of business you’re looking for.
- Are you looking for a franchise?
- A small business?
- A large corporation?
Once you’ve decided on the type of business you’re interested in, you’ll need to start doing your research. Look online and in business directories to find businesses that are for sale in the UK. Once you’ve found a few businesses that fit your criteria, it’s time to start contacting the owners. Ask them about their asking price, their current financial situation, and any other relevant information.
Once you’ve got all the information you need, it’s time to make an offer. If everything goes smoothly, you’ll be the new owner of a business in no time!
Advantages and disadvantages of buying a business
When most people think about starting a business, they assume that they will be starting from scratch. However, there can be many good reasons to buy an existing business instead. For one thing, an existing business already has a track record and a established customer base. This can provide valuable insights into what does and does not work in the marketplace. In addition, an existing business is likely to have already secured any licenses or permits that might be required.
Finally, buying an existing business can save you a considerable amount of time and money. All of these factors can make buying an existing business a very attractive option. Of course, it is important to remember that you will also be taking on the legacy of the previous owner. As such, it is essential to thoroughly research the business before making any purchase. Only by understanding every aspect of the business can you hope to make it a success in the long term.
- The business is up and running generating revenue
- It is easier to obtain finance due to the business having a proven track record
- The product or service already has a proven demand and market
- There is an established customers base, and a reputation to build on.
- The business will have a network of contacts
- A business will have long term marketing methods in place
- Employees of the business will have experience you can draw on
- Problems within the business will already have been discovered and solved
- Large amounts of money up front, is needed to start the business while waiting for a return
- Several months’ worth of working capital will be needed to assist with cashflow
- Businesses which are distressed will need more money on top of the purchase price to give it the best chance of success
- Outstanding contracts will need to be honour or renegotiate when the previous owner leaves
- Consideration will be needed as to why the current owner is selling up. What impact on the business will take over have
- Current staff may not be gel with new owners, this could have a detrimental effect on the business and staff morale
3. Decide on the business to buy
Deciding on the business to buy is a process that takes time, effort and a lot of thought. You need to make sure that the business you buy fits your own skills, lifestyle and aspirations. To do this, you need to sit down and list what is important to you.
What are your motivations? What do you ultimately want to achieve? Once you have answered these questions, you can start looking for businesses that fit your criteria. By taking the time to think about what you want, you can increase your chances of finding the perfect business for you.
It is useful to consider:
- Your abilities – are your abilities capital with what you want to achieve?
- Your capital – the amount money you are looking to invest?
- Your expectations in terms of earning – the level of profit will determine what earning you will be able to take as a salary.
- Your commitment – you must be prepared for hard work and funding the business with your own money until it succeeds.
- Your strengths – your strengths and weaknesses will determine what your skills level will be needed.
- The business sector you’re interested in – your chosen industry will need you to have knowledge in that sector, if you don’t you will need to hire in help.
- Location – don’t be restricted to buy a business to your local area. Businesses can be easily relocated
4. How to value a business
How to value a business is an important question for anyone looking to buy or sell a company. There are several valuation methods that can be used, and your accountant may be able to help you with this. However, a business transfer agent, business broker or corporate financier will be best qualified to provide valuation advice.
They will take into account factors such as the size and turnover of the company, the sector it operates in and the current economic climate. They will also look at recent comparable sales of similar businesses. Using all of this information, they will be able to give you an accurate valuation of the business.
- the history of the business
- its current performance including sales, turnover, profit
- future projections, contract or a business plan
- its financial situation including cashflow, debts, expenses, assets
- why the business is being offered for sale
- any outstanding legal issues the business is involved in
- if a regulated business are there any changes which might have an impact
Any time you are considering making a major purchase, it is always a good idea to do your homework and gather as much information as possible. This is especially true when it comes to buying a business. In order to get a realistic idea of what the business is worth, it is important to talk to the vendor and, if possible, the business’ existing customers and suppliers.
The vendor must be comfortable with you doing this and you must be sensitive to their position. Customer and suppliers may be able to give you information that affects your valuation, as well as information about market conditions affecting the business. For example, if the vendor is being forced to sell due to decreasing profits, your valuation might be lower.
By taking the time to talk to all of the relevant parties, you can get a clear picture of the business and make an informed decision about whether or not it is a wise investment.
Getting an intangible assets valuation is usually difficult and could include:
- the company’s reputation
- its relationship with suppliers
- the value of goodwill
- the value of licences
- patents or intellectual property
There are a number of other factors that will affect the value:
- benchmarking – other businesses that have been sold within the sector
- other businesses within the sector that are on the market or for sale
- the economic climate – government implementing legislation that has an impact on the business
5. Due diligence
Due diligence is an important part of the process of buying a business. It allows you to examine the business’ books and records in order to get a better understanding of its financial health and performance. This information can be used to help you make a decision about whether or not to proceed with the purchase. Due diligence can also highlight any potential issues or problems which might need to be addressed before the purchase is completed.
Therefore, it is important to allow sufficient time for due diligence to be carried out before making an offer on a business.The three types of due diligence have been traditionally been applied. A different advisor maybe needed for each:
- legal due diligence – lawyers will can check that the business has legal title to sell as part of a sales and purchase contract. The ownership of all the assets and any finance outstanding as well as regulatory and litigation issues are fully addressed
- financial due diligence – an accountant will check the numbers and making sure there are hidden financial issues
- commercial due diligence – ensuring that the business’ has place in the marketplace competitors and the regulatory environment checked
When you’re buying a small business, it’s important to do your due diligence before agreeing on a price and terms with the seller. They may agree to take the business off the market during your investigation, which is known as an exclusivity period. The seller will often ask for a down payment to secure it.
The investigation period is negotiable, but most small businesses need at least three to four weeks. During due diligence, you’ll want to investigate the business’s financials, customers, employees, contracts, and property.
This will help you get a better sense of the business’s value and whether or not it’s a good fit for you. If everything looks good, you can move forward with the purchase. If not, you can walk away without losing any money.
Where to get help
Conducting due diligence is an important step in any business transaction, whether you’re buying or selling a company. Due diligence allows you to assess the risks and potential rewards of a deal, and to determine if it’s the right fit for you. Ideally, you should enlist the help of accountants and solicitors to help you identify risk areas.
If the company is registered with Companies House, you can also obtain copies of the company accounts, the annual return, and other key documents. This will give you a clear picture of the financial health of the business.
However, due diligence is about more than just the finances. You need to know exactly what you are getting into, what needs to be fixed, what it will cost to fix, and if you are the right person to take on this business.
By taking the time to do your due diligence, you can minimise the risks and maximise the chances of success in any business deal.
Areas that will be cover are:
- employment terms and conditions
- outstanding litigation
- major contracts and orders
- IT systems and other technology
- environmental issues
- commercial management including customer service, research and development, and marketing
Information from external sources such as the landlord, tax office or bank will also be needed.
6. Buying a business
Having an organised approach to sourcing, buying and acquire the right business will help you.
Get professional advice
Getting professional help from finance brokers is using seller finance, accountants, solicitors is invaluable as you go through the negotiation, valuation and purchase process.
You should also research the sector you’re interested in, including when is best to buy and shortlist two or three businesses.
Initial viewing and valuation
It’s important to be discreet when selling the business, since it might not want staff knowing. But make sure you thoroughly investigate and note down any findings so there are no surprises later on.
Lenders offering acquisition finance generally require the following information:
- details of the business/sales particulars
- the last three years filed accounts
- financial projections – if no accounts are available
- personal assets and liabilities statement
Make a formal offer
Telephone conversations are a great way to get things started, but it’s always best if you can write down your thoughts in an email or on paper. It’ll help keep both parties honest and prevent any miscommunication from happening during the process!
Before completing the sale, it may be worth trying to negotiate an overlap period so you have time to become familiar with the business before taking over. This will give you time to get to know your customers and staff, as well as getting a feel for the day-to-day running of the business.
You may also want to use this opportunity tomake any changes that you feel are necessary, such as introducing new systems or processes. It is important to bear in mind, however, that the seller will still be legally responsible for the business during this period, so you will need to agree on a handover plan that works for both of you.
Once the sale is complete, you will be responsible for all aspects of the business, so it is important to make sure that you are confident and prepared before taking over.
If a contract has been signed and the conditions of sale are met, it’s time to finalize things by going through with what is known as “the closing.” The buyer will prepare all necessary paperwork so that they can receive their purchase from seller.
The party who wants something sold may have already sent out feelers about this intention before deciding on an actual price or terms for doing business; but once those negotiations reach fruition (and sometimes even if not), there still needs be another step taken prior-to shipping any product: completing certain formalities such as getting signatures from both parties involved in order put down markers showing ownership at last, these include:
- verification of financial statements
- transfer of leases
- transfer of contracts/licences
- transfer of finance
- transfer of existing or new VAT registration
7. Looking after existing employees
Looking after existing employees is an important part of taking over a business. The new owner must follow certain regulations that govern what happens to employees when someone new takes over a business. These apply to all employees when a business is transferred as a going concern.
This means employees automatically start working for the new owner under the same terms and conditions. The new owner must also consult with employees about any changes to their employment, such as changes to their roles or hours of work. Taking over a business can be a daunting task, but by following the regulations and consulting with employees, the new owner can help ensure a smooth transition for everyone involved.
Employment tribunal awards
When you buy an existing business, you might decide you need to employ fewer staff. But be careful about making any changes, as an employee might take a case to an employment tribunal for unfair dismissal or unfair selection for redundancy. Employment tribunal awards can be significant, so it’s best to consult a solicitor before making any such changes.
The solicitor can advise you on the best way to proceed, taking into account the risks and potential costs. In some cases, it might be possible to negotiate a severance package with the employee directly, which can avoid the need for a tribunal case altogether.
Inform and consult employees
As the new employer, you have a responsibility to inform and consult employees who may be affected by changes to the business. This includes reducing employee numbers or reorganising staff. It’s a good idea to wait until you have completed the due diligence period before making any decisions.
This gives you time to assess the business and make sure that any changes are in the best interests of the company. Once you have made a decision, you should consult with all employees who may be affected. This gives them a chance to provide input and express any concerns. Consultation is an important part of ensuring that changes are made in a fair and transparent way.
Pensions are an important part of many employees’ financial planning, and employers have a responsibility to provide adequate pensions arrangements. However, when a business changes hands, the new employer is not automatically liable for the previous employer’s pension obligations.
Instead, the new employer has the option of providing comparable pensions arrangements, but is not obliged to do so. If the new employer does not provide adequate pensions provision, they could theoretically face a claim for unfair dismissal from disgruntled employees. However, in practice, it is unlikely that such a claim would succeed, as the onus would be on the employee to prove that they were dismissed primarily because of their pension entitlement.
Nonetheless, it is important for new employers to be aware of their obligations in relation to employee pensions when buying an existing business.
Seasoned professional with a strong passion for the world of business finance. With over twenty years of dedicated experience in the field, my journey into the world of business finance began with a relentless curiosity for understanding the intricate workings of financial systems.