Buying a
business

Are you are looking to buy an existing business? This can be an exciting time but what do you need to look out for?

Although buying an existing business can be attractive – offering instant growth, a track record and the chance to diversify it can also be challenging.

You will need to:

  • Make sure the price is right.
  • Ensure the business can meet your expectations.
  • Check its financial and structural health.

This means working through a checklist shaped to your risk profile and the size of the business being bought.

Look for signs of stress when buying a business

Sometimes problems and opportunities in a business are not obvious. An experienced eye will spot weaknesses as well as strengths in the accounts – often from what is left out of them!

Capital expenditure projections and order books should also be examined closely, particularly with an eye to problems and growth potential.

If you need bank borrowing to make the purchase, further information may be needed to satisfy their lending requirements. This can include, for example, how any liabilities will be dealt with.

Think about the tax

There are ways to reduce the risk of purchase through Government tax incentives. But getting these and reducing liabilities elsewhere will depend on:

  • How the purchase is financed.
  • Whether you are buying as an individual or through a corporation.
  • How long it will be kept.
  • Where the business its within your overall financial planning.

Retaining and motivating key people

Get to know the people!

There are other issues to consider when buying a business, particularly around retaining key employees before buying. Some businesses depend on the talent, energy, contacts and enthusiasm of specific individuals.

If that reliance is high, you will need to know what has been done to keep those people on board after the sale.

There are also potentially other considerations around the workforce. A purchase may involve the challenge of business and team integration with an existing enterprise, or cause a staffing duplication that raises personnel management issues.

Valuing a business realistically

Make sure you benchmark the purchase price against what was paid for similar businesses to avoid overpaying. Make sure you or your adviser research this thoroughly.

Reducing the risk

There are other ways to lock some security into a purchase in addition to tax incentives.

These include:

  • Making part of the agreed payment depend on performance targets being met by an agreed time.
  • Offering shares rather than cash to the owners.
  • Lock-in clauses to keep an existing management team.

Be clear what will be delivered 

A potential purchase may involve you taking on more debt. Is this something that the revenue it brings will sustain? The business may be expected to open overseas markets for your existing enterprise. Will it do so?

Lastly, it is a good opportunity to undertake a wider review of financial planning, particularly for owner-managed businesses.

Our expert team can help you

If you are looking to buy a business and would like some expert guidance, contact us to arrange to speak with one of our specialists in London, Kent or Sussex.

Contact our experts

If you are looking to buy a business and would like some expert guidance, contact us to arrange to speak with one of our specialists in London, Kent or Sussex.

Contact our experts

"If you are looking to buy a business and would like some expert guidance, contact us to arrange to speak with one of our specialists in London, Kent or Sussex."

Jack Clipsham, Corporate Finance Partner

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Contact our experts - Buying a business

If you are looking to buy a business and would like some expert guidance, contact us to arrange to speak with one of our specialists in London, Kent or Sussex.

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