Buy an existing business in the UK

The business you buy needs to fit your own skills, lifestyle and aspirations so before you begin searching, reflect on your personal circumstances.

• Your strengths and abilities - what kind of business opportunity will give you the chance to put your skills and experience to good use?
• Your capital - how much money do you have to invest?
• Your earning expectations - what do you need to accommodate your lifestyle?
• Your commitment - are you prepared for all the hard work and money that you will need to put into the business to get it to succeed?

Then you will need to develop an in-depth understanding of business sectors that interest you, and how different business models and supply chains work. Research the markets, competitors, current trends and potential for growth, and talk to people already in relevant businesses.

Business Gateway has a range of market reports on different sectors which is a good

The three first steps are to:

• Identify expert advice: Professional help is invaluable as you go through valuation, negotiation and purchase, so decide where you will obtain legal, financial and surveying advice from specialists with experience in this area.
• Understand finance options: You should know what type of finance you would use for a purchase and how much you could realistically raise. You will need budget for professional fees for solicitors, surveyors, accountants, etc, and will probably need several months' worth of working capital to assist cashflow.
• Identify possible businesses: You can search websites which advertise businesses for sale, register your interest with brokers, or even approach businesses directly to express interest. Some types of business can be easily relocated, so you may not need to restrict your search to your local area.

When you have a shortlist of businesses to look at more closely, remember to be discreet during any enquiries as the owner may not want staff to know they are selling the business.

The obvious thing you will be checking is if the business looks financially viable with an established customer base.

From the early stages it’s also helpful to establish:

• why the current owner is selling up, how much they are looking for, what is included in the sale, and how this might impact your ability to take over the business
• the culture and reputation of the business so you can sense whether you could be a good fit and maintain or boost staff morale
• whether aspects of the business are obviously neglected which might be an opportunity to obtain the business at a good price, but may need considerable investment.

The value of a business will depend on:

• financial history, current performance and projections
• external factors such as the economy, regulation, competition, and demand for this type of business
• assets and liabilities
• intangible assets such as intellectual property, licences, brand and goodwill
• skills, experience and commitment of key staff
• reason for sale.

There are various approaches to apply this information when valuing a business such as a multiple of earnings or asset valuation, and buyers and sellers may use more than one method. Usually expert advice is needed from an accountant, business broker or corporate financier.

Before making an offer, you should have done as much research as possible about the business and reviewed all publicly available information.

Once an offer is made and a price and a “heads of terms” has been accepted subject to contract, a negotiable period of time is allowed for the buyer to access the business' books, records and contracts. This is known as due diligence and you will probably have to sign a non-disclosure agreement.

The seller may agree to take the business off the market to give the potential buyer an exclusivity period, but there may be liability for some legal costs if one party subsequently pulls out.

You might need different advisers for each area of due diligence.

• Legal - ensuring the business has legal title to sell, confirming ownership of all the assets and that there are no outstanding regulatory and litigation issues.
• Financial - verifying the accounts, tax records, invoices etc, making sure there are no gaps or hidden issues, and understanding any loans and other debts.
• Commercial - reviewing the details of contracts with customers and suppliers, customer service records, research and development processes, marketing effectiveness, IT systems and other technology, surveying any business premises, or inspecting other assets.
• People - understanding the organisational structure, employment contracts and levels of staff turnover.

This process should give a more accurate picture of how the business is performing now, how it is likely to perform in the future and identify any issues to be addressed. This will determine whether or not you continue with the purchase, and, if you do go ahead, the final price and any terms and conditions.

At this point, you will need to understand what is involved in finalising a contract. It may include protection against future liabilities through:

• warranties where the seller provides legal confirmation that key facts are accurate
• indemnities where the seller will reimburse the buyer for any tax or VAT penalties.

You may want to negotiate an overlap period so you have time to become familiar with the business before fully taking over.

Completion is when the deal becomes legally binding and the buyer transfers the funds to the seller.

Retaining the goodwill of existing employees will be vital for a successful transition when you come in as a new owner. The change could be unsettling for some staff, so it will be vital to take a respectful approach and embed effective communication from the beginning.

There are regulations covering what happens to all employees when a business is taken over as a going concern, and employees automatically start working for the new owner under the same terms and conditions.

If you need to reorganise roles or reduce head-count, obtain expert advice to ensure you properly inform and consult all employees to avoid risk of an unfair dismissal process which could result in legal action. Likewise, if you intend to change any pension scheme arrangements.

Our human resources section has a range of advice on employment matters.