What Do You Need To Do Before You Buy A Business?

There is no doubt that buying a business is a much faster way to get into your industry of choice than building up a business from scratch.

Most new businesses fail, but you can usually find a good business to buy that has a track record and existing customers and cash flow. Therefore it is often a good bet to buy an existing business. But what do you have to do to make the purchase a successful one?

Get yourself a good set of professionals on board who can help.

It is so important that you get a good experienced solicitor and a good accountant on board. Although you may use a business broker, they will not normally be able to undertake the legal and accounting work required for the purchase itself. You will need help with looking at the figures, cash flow, negotiation on price, staff issues, intellectual property and potentially property issues. In addition to all the paperwork that is required to purchase a business, there is an entire due diligence exercise to be undertaken so that you can understand the ins and outs of the business you are purchasing.

Make sure you use specialists with experience and not just a general solicitor. They must have experience of buying and selling businesses.

Research your market thoroughly.

It’s often the case that you have some idea about what type of business you want to buy. You may have already been employed in that market. Or perhaps it is a passion, or you may know that it is a market that is expected to grow and where you can make money. Sometimes it may even be a distressed business you buy and can turn around. It often takes a year or two of research before you can come up with a shortlist of 2-3 companies.

Don’t Rush Things.

Make sure you allow enough time for research and identification of the businesses you want to look at. It’s not easy juggling a job, family and other commitments and then doing all the hard graft to find the right acquisition. So don't rush.

Who are you and what can you do well?

Don’t skip on research and seller motivation!

Often an owner is a reluctant seller. They may have built up the business over decades and parting with it is “such sweet sorrow”. And the owner may feel responsible for their staff and not even tell them they are looking to sell. So be discreet when you visit. Don’t tell the owner all the things you are going to do to improve the business and all the changes you might make. Someone who wants to buy the business to continue the traditions, take it on as a passion and believes in the future of the business and the staff, will likely get a more favourable reception and price.

Finance

To get the finance you need, you’ll need to know the figures.

Very few buyers of a business use their own cash reserves. Normally, finance is arranged via a commercial bank loan. Sometimes a family may club together with savings but usually, an outside source is required.

You will have to do some initial due diligence so that the bank will lend you money. The things you will need to know as a minimum are:

  • The legal situation of the business including assets and liabilities.
  • Accounts for three years ideally.
  • Forecasts and projections, particularly of cash flow.
  • Details of personal financial situation and any guarantees or collateral.

Finally, remember that buying a business is a matter for negotiation. You don’t have to pay what the owner wants. It’s better to pay what you think is right. If you have reasons to offer a lower price, let the owner know why you are doing it.

Subject to contract

You might speak to the owner or broker by phone to make an offer for a business. It should always be the case that you follow this up in writing. When you write any correspondence, ensure that words “subject to contract” are clearly marked.

Use Your Solicitor and Professional Advisers

First time buyers often vastly underestimate the amount of work that is required to bring a purchase to completion. Be prepared to burn the candle at both ends! The terms of the primary purchasing agreement can be very significant and very detailed, and you will need advice from your solicitor on what is worth fighting and what isn’t. You will be wanting warranties and guarantees from the seller, and these will link to the substantial due diligence exercise that will then need to be undertaken to reveal every nook and cranny of the business being purchased. On top of that, there will likely be a significant number of ancillary documents required, from board minutes, to settlement agreement, to appointment notices.

How Oliver Kew, Business Solicitor, can help.

Buying a business needs professional support from an experienced solicitor. It isn’t just about contracts. A good business lawyer has experience you can call upon which is independent and is focussed on your needs.

Oliver Kew at Hewetts Solicitors has completed dozens of sales and purchases of businesses in the Thames Valley.

Speak to Oliver today for a free consultation on your potential business purchase.

Call 0118 957 5337 or email o.kew@hewetts.co.uk

Published on 04/11/2021

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