How to buy a business
Buying an established business, rather than starting one from scratch, can take a lot of the hard work out of the equation. You don’t have to worry about building up a reputation or whether the business will be profitable. However, buying a business can be extremely expensive and complicated. Let’s have a look at the steps involved in buying a business.
Considerations of Buying a Business
As we’ve discussed, buying a business can be a simpler and more reliable investment than starting your own, but the downside is that it will probably cost you more in the short term. You also need to decide what kind of business it is that you want to buy. Consider what experience you have and where your strengths and weaknesses lie. It may sound obvious but you’d be surprised at the number of people who go all-in without even thinking about it. Once you’ve found a business that you are interested in buying you need to let the agent know. We will contact the seller’s solicitors and request the Asset Purchase Agreement if you are buying Goodwill and Assets. If you are buying a Limited Company it is a purchase of shares and we will need to draft the Share Purchase Agreement. Once the offer is accepted there is a period of time set aside to allow the buyer to conduct due diligence enquires. It allows the buyer time to look through the company records. If there are any unforeseen financial problems within the company these should come to light during this time. You should instruct a solicitor and/or an accountant to assist you in the due diligence process. Due diligence also gives you time to focus on the employment terms and conditions, alongside things like IT, website/domain names and marketing.
Completion of buying a business
Once you’ve agreed on a price for the business and the terms of sale, you need to make sure that all of the transfer documents are completed and verified.
So the steps to buying a business, broken down, are:
How do you buy a business, and what are the procedures when doing so?
Firstly, the seller puts the business up for sale, then a potential buyer makes an offer. If the offer is accepted, the buyer’s legal team will conduct due diligence enquiries to make sure there are no unforeseen liabilities. If serious concerns are raised you could be advised to walk away from the deal. Due diligence can be a lengthy process, but it is essential. This is because English law does not provide much protection over such purchases and requires the buyer to be fully satisfied before buying.
What are some of the issues that can present after you buy a business?
There may be practical steps that you haven’t considered such as integrating new software into pre-existing frameworks, transfer of employees, access to emails and websites, retaining the business telephone number and domain name.
On some occasions, covenants may be given by the seller stating that they will not run a similar business within a particular geographical area to prevent them from opening up in competition. Your solicitor can advise you in relation to this.
What if you’re buying a business for the first time? How to buy your first business.
As long as you instruct an experienced and well respected firm of solicitors you will be given advice every step of the way. Many people decide to buy an existing, well established business, rather than starting one from scratch.
Four things to remember:
- Get some professional advice. You should select a solicitor that specialises in corporate commercial work and business acquisitions
- Make sure you are buying a viable business.
- Are the business accounts in order?
- Instruct your solicitors to represent you in the matter to look out for your interests