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The Complete Guide to Buying a Business

13 Mar 2024
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Buying a business can be a great way to bypass some of the years of hard work that go into building a venture. Yet, it's by no means plain sailing, and it's only likely to prove a shortcut to success if you get everything right. While buying an established business does require some time and effort, it also means you'll need to have access to substantial funds, so there are risks.

None of that is to say you shouldn't seriously consider buying a business. Buy right, and you're likely to purchase an existing, healthy customer base – which also means a proven product or service. Existing employees can be worth their weight in gold when you are buying an ongoing service, but it's essential to approach that process in the right way. If you follow the appropriate steps and consider the right questions to ask when buying a business, it can turn out to be a wise move.

At Accounts and Legal, we have a unique business model that allows us to offer accounting services and legal advice under one roof. This is particularly useful when going through the process of preparing to sell your company, or if you’re considering buying a business in the UK - both of which we are experienced in and passionate about.

In this guide, we're going to look at what you need to consider when purchasing an established company. If you’d like some friendly advice on buying or selling a business, or if you’d like a business valuation, get in touch with our team today.

So, what are things you need to consider when buying a business? Lucky for you, we’ve compiled our years of experience into this guide, designed to give you the first vital nuggets of information to set you on the right path.

Understanding the Landscape of Buying a Business

You may be dipping your toe into buying a business for the first time and you’re looking for any potential red flags. Or you’re a seasoned entrepreneur who's done this before but needs a jog of their memory. Well, buying an existing business comes with many pros and cons, and working out what best suits your goals is essential. Fortunately, we’ve helped a lot of business owners buy and sell businesses over the years, so we know a thing or two. As a starter for ten, we’ve broken down some of the advantages and disadvantages of buying a business below:


  • Established Brand – this one can be both a positive or a negative, it depends on the business. For this exercise, we’ll talk about the positives. An established brand will often have built its public persona already. They may have a loyal following and have done most of the hard yards in establishing themselves. Chances are, if you're considering buying their business – there’s clearly a strong brand that attracted you in the first place. For people hoping to buy a business, this can be incredibly persuasive, and a strong brand image and reputation can be enough to attract potential buyers. A brand also takes years to build, so jumping on an existing company expedites the painstaking process of building a reputation.
  • Loyal Customer Base – linked to the earlier point, an existing business is likely to have a strong customer base that buyers would inherit. This comes with a lot of pressure for the new buyer to maintain that relationship and to maintain trust in the future. All being well, a new buyer can instantly benefit from the cash flow and revenue offered by an existing customer base. This offers a level of stability for buyers that can be incredibly attractive but may come at a cost.
  • Proof in the pudding – the business model clearly works, which is probably what attracted you to the brand in the first place. One of the biggest ‘pros’ is that the existing businesses will likely have a track record of sales, profitability and generally doing things well. If they, don’t maybe it's time to reassess. Of course, no business is perfect, but if there’s evidence of a working business model, then it certainly bodes well for the future.
  • Good Workforce – the backbone of any good business is its staff. Be careful in managing the transition and you could retain the employees. In those tentative first few months, having loyal staff who know the business inside and out will be essential in setting off on the right foot. Fundamentally, without the staff the business falls apart. So managing the transition and keeping staff happy is job number one when buying a business.
  • Trusted Suppliers – when you buy an existing business, you’ll benefit from the existing relationships with suppliers that have built over the years. Ensure you nurture these relationships and you won’t have to source your materials and services.
Buying a business is no mean feat, so you’ll be glad of anything that will make your job easier. Maintaining everything that was built before your acquisition will not only give you fewer jobs, but it’ll provide you with stability in the form of cashflow. On the flip side, many of the negatives will also be related to problems that have been present before the acquisition. With that in mind, let’s explore some of the negatives of buying a business we’ve seen over the years:


  • Money, Money, Money – great, you’ve found a business with a solid brand, a loyal customer base, and employees that would run through walls. Oh, surprise surprise, it’s ridiculously expensive. Often businesses that tick every box will come at a premium, meaning there are two options. Pay through the nose for a business that is doing incredibly well or pay less for a ‘fixer-upper’ where you can work your magic. Expect to pay substantial amounts either way, and you won’t be caught off guard.
  • Historic Problems – no business is perfect. You can expect any number of legacy issues to rear their head when you buy a business. Everything from existing debts, ongoing legal battles or high staff turnover, it really is an Aladdin’s Cave of potential problems. Fortunately, that’s why the due diligence is in place, and we know how important it is from experience.
  • Scared of Change – us humans are often scared of change, and when buying a business it’s important to keep this in mind. This goes for suppliers, customers, and most importantly staff who will all be experiencing uncertainty surrounding the new ownership.
  • Stuck in the past – the business may have old systems and processes that it has used for an eternity. ‘This is how we’ve always done it’ is a surprisingly common phrase in business, and one you may have to deal with if suggesting new and more efficient ways of doing things.
  • Nasty Surprises – there may be other issues that come out of the woodwork that are difficult to account for. Think HR timebombs, a dip in customer satisfaction or matters completely out of your hands, like global pandemics. The point is, you can’t predict the future, and no matter how thorough you are, you can never be 100% certain things will go smoothly.
  Either way, you can certainly prepare yourself by doing your research and conducting thorough due diligence. Buying a business is a big decision, and it’s more important you leave no stone unturned both legally and financially before you make the final decision. Selling or Buying a business? Get in touch

Questions you should ask when buying a business

So, what are the questions you should ask when buying a business? And how do you determine you're not being misled? Buying a business is a considerable commitment to make. It's going to pay to draw up a list of what you need in order to be comfortable with any potential deal and then stick with that.

Why are you selling the business?

You wouldn't even consider buying a second-hand car without asking a version of this particular question – yet, many business buyers either skirt around or entirely fail to come out with it. The fact is, it's a reasonable question to ask, and you can tell a lot about the seller and the business when you do.

If anything, hearing a plausible, logical reason for the sale will set you up to have more confidence as you move forward. The worst case is that you hear terrible things or don't get a good feeling about the deal, and there are plenty more fish in the sea. People have all sorts of legitimate reasons for selling up. You're entitled to ask as many questions as you like when you're a potential buyer, so don't be shy about starting with this question.

Related: Inheritance Tax: Take the sting out of selling your business

Is this a financially viable business?

Again, this may seem like an obvious question to ask, but it's a great way to gauge how genuine a seller is. If there are problems, even the most brazen of vendors can get twitchy at this point. Watch out for vagueness or irritation, and if you smell a rat, further investigation is definitely required.

Who are the customers, and are they loyal to the current ownership?

A significant part of the value in any business is in its client base. You'll need to find out if that client base suits your experience, skills, and knowledge. Avoid taking on customers that are a complete change for you. Try and stick to what you know. This question is about worth, but it's also related to whether the business is a good match for you, and that's very important for the future and success.

You'll also want to be sure you're buying all of that client base. Changing ownership is one thing, but building up customers from scratch is quite another entirely. If some of the customers are going to move with the existing owner, that could be a deal-breaker. You'll need to ascertain precisely what the situation is before you can either establish a valuation or proceed with the deal.

How did you arrive at your current asking price?

This is another question that can seem slightly obvious when written down, but it's vitally important to ask. Sellers are often emotionally attached to their business, but that's pretty much irrelevant when placing an accurate and fair value on it.

If the business hasn’t been valued by a professional, get some facts about how they arrived at their valuation. Although it's not necessarily a deal-breaker if that got influenced by their attachment, you'll get a good idea about what you need to do in order to proceed realistically.

Can I access the accounts and other important records connected with the business?

Any business you intend to buy needs to have the appropriate paperwork available. Tax records, supplier documents, and invoices have to be present if you are ever going to be able to assess things accurately.

If they're not, it's time to walk away. Without records, you can't arrive at an assessment of either the worth or viability of a going concern. The correct documentation is also essential for making sure everything is legal and above board.

Does your business have any employees, and do they know about the potential sale?

Employees can be a mine of information, help, and comfort when you take on an existing business – or they can be a thorn in your side. If the company has employees, there are legal obligations to consider, but you'll also want to gauge if they're happy about the sale too.

Ideally, it's great to be looking at a business where the workers are kept informed about the sale and looked after suitably. That's an excellent place to take over, and infinitely better than the prospect of a disgruntled workforce – which can be a mammoth problem in itself to overcome.

Communicating with existing staff is probably the best, if not the only way, to keep them on your side and working for you. Ask the question and then act promptly and accordingly, or you could affect the value of the business significantly.


How long is left on your commercial lease?

If there's a lease involved, you have to find out how long it runs for, and factor in the costs if there is only a short term remaining. Those costs are likely to be considerable, so this is a vital part of doing any deal for an existing business. You'll also want to see a copy of the lease as part of the due diligence process.

What is due diligence when buying a business?

Generally, by the time due diligence comes around, you'll be a fair way down the line in terms of buying a business, but that doesn't mean you can't still pull out or adjust the terms of a deal.

Due diligence usually happens once intent to buy has been confirmed, and you've agreed on a preliminary price. The seller should grant you full access to business and management accounts and records at this point.

Buying a business can sometimes be an emotional roller-coaster, but it's essential you remain willing to walk away at any point during the process. Due diligence should form the backbone of your evaluations concerning any business. The only way to really measure the worth of a company is by comparing its assets and liabilities in black and white terms.

Make sure that during due diligence, the seller provides information and documentation promptly. This isn't a time for unnecessary delays. Remember, this is a lot like buying that second-hand car, so you can expect the seller to have prepared everything beforehand, look out for any massaged figures or concealed issues.

As well as poring carefully over the accounts, you'll want to get a measure of stock, the condition and value of any building involved, and pay attention to equipment and tools too. You'll also want to come out of due diligence with a reasonably sound idea of how well the business is doing, and how it will continue to perform. Don't rush this part of the process.

Sellers are often willing to put a sale on hold while you conduct your inquiries, and you'll usually need several weeks to do that properly.

What does leasehold mean when buying a business?

When you buy a freehold business, you get the nuts and bolts, stock, and goodwill associated with the commercial operation, but you also acquire any commercial property or land.

If it's a freehold deal, you get a lot more freedom in terms of developing the facilities and changing things where you see fit. Apart from the considerable differences in the valuation of a leasehold versus a freehold business, leasehold versions can be a lot like renting a house where you have to ask permission before hanging a picture.

However, different leases come with varying terms and conditions, so it's essential you seek professional advice to get a good handle on that. That's not to say no leasehold business is worth buying. Generally, pound-for-pound, leasehold is going to provide a cheaper way to get into running your own show, and it's going to depend a lot on what you can afford.

What to look for when buying a business

Buying a business is an excellent time to keep your eyes open for problems. Sometimes, small things often make a big difference, and tell-tale signs may illustrate where to start looking for more significant issues. The potential rewards when buying a business are substantial, but the scope for underlying trouble is significant too.

  • Watch out for accounts receivable. Again, that's not necessarily a deal-breaker, but you'll need to be clear from the outset about who's responsible for any outstanding invoices.

  • Sellers who refuse to disclose or aren't readily open about finances are a giant red flag. Remember, always stay prepared to walk away.

  • Takings or customer numbers falling off in recent months is not a good sign for buyers. It's also well worth keeping an eye on who those customers are. Too many eggs in one basket is bad news for any business, so you don't want to depend on a small number of clients or revenue streams. Ideally, you want to see a diverse and loyal, ongoing client base.

  • Poorly maintained premises, tools, or equipment are a warning sign. Maintenance and care for equipment can be an excellent indicator as to the general health of the business, and neglect is never a great sign. Not only that, but it means you're far more likely to require future investment to keep the business running.

  • In the internet age, customer reviews can provide an eye-opening illustration of how a business performs. They often offer a far more trustworthy account that many buyers will offer.

  • Unhappy staff can drastically affect the value and viability of a business, as can an ongoing high turnover of employees.

  • Check out the business's credit rating. That can give you not only a great idea about what the deal is worth but also some real insight into the ownership or management.


How to Negotiate the Price

You’ve decided on a business that you’d like, you’re going through the process and now you’re wondering how to negotiate the final fee. Well, like everything along the journey of buying a business, it takes careful consideration to land at a number. From our experience here are the factors to consider:
  1. Do Your Homework – If you’ve not done your research by this point, don’t bother! Thoroughly assess the market, dig deep into the business and research the competition. Can you see any similar sales that have taken place recently?
  2. What’s the Value? – not just the monetary value, but what else does the business offer? What are the unique selling points? What differentiates it in the market? What are the growth opportunities? Your offer should reflect this and consider the potential future of the business.
  3. What’s the current climate? – look at the markets, and use data and industry trends to build a picture of where things are going. Is there currently an economic decline that may affect things? The timing of when you choose to buy a business is crucial and can have a huge effect on the price.
  4. First Offer – Understand from the offset that it’s a process. Make a first offer based on your research and see how it gets received. You want to offer a fee that’s competitive, realistic and based on your research. Imagine this as your foundation, a pie-in-the-sky figure or an insulting low-ball offer will only sour the remaining negotiations, or in the worst case destroy them completely.
  5. Counteroffers – you might strike lucky and get an offer accepted first time around, if not, expect a counteroffer. Here’s where the negotiations begin, so roll up your sleeves.
  6. Due Diligence – You may have done research, but have you conducted due diligence around the financial and legal side of the business? This is the point where you need to get a professional so they can wheedle out any potential problems that may affect the value. It may unearth something that kills the deal completely, but you’d rather know about any problems before it’s too late.
  7. Stay Flexible – there may be an element of give or take when buying a business, so be prepared to potentially pay more than you’d expected. It’s very much a process of negotiation, so be ready to go back and forth.
  8. Final Agreement – once you’ve reached a consensus on the key terms of the deal, it’s time to make the final agreement. Get it down in writing and outline all the key terms of the deal, including price, payment terms, transition period and any contingency plans.

Ways to Finance Buying a Business

A crucial part of the process is identifying how you’re going to fund the acquisition. Fortunately, there are lots of options for buyers which we’ve explored below:

Bank Loans

Getting a loan from the bank is one of the most common ways people fund buying an existing business. If you’ve got a strong credit history, you may be able to get a favourable interest rate. Each bank will be different and will have different criteria, but it’s worth checking with a reputable bank and assessing the options. Of course, banks aren’t throwing the money away. To get a loan, you’ll need a bulletproof business plan, personal guarantees, and a hefty down payment. But if you can tick these boxes, then you may be able to secure a bank loan.

Seller Financing

Seller financing is where the seller provides funding to the buyer, letting them buy the business without having to get a traditional bank loan. Often called owner financing or vendor financing, this option allows the buyer to pay back the owner in a series of installments over time. The beauty of seller financing is that it offers a level of flexibility for buyers in relation to the terms and conditions and how the deal works. Essentially, it’s up to both parties to negotiate how the repayments will work, what the interest rate is and what the sale price is. Of course, we recommend speaking to an expert if you’re considering this as an option. For sellers, they may benefit from a higher sales price as the privilege of paying overtime often comes at a premium for buyers.

Venture Capital

Venture capital firms tend to invest in high-growth start-ups, and may be an option for people looking at existing businesses. One of the minuses to venture capital is it’ll often mean sacrificing a chunky percentage of your business, something we suggest thinking long and hard about. Venture capital by its nature is highly competitive and is usually ideal for businesses with rapid growth and lofty forecasts.

Private Equity

Similar to Venture Capital, investment from a Private Equity (PE) firm will often take a big chunk of control over the business. PE firms specialise in acquiring and investing in businesses with the sole purpose of growing them and flipping them once their value has increased. This means the investments are often fairly short-term, and will rely on the investor being able to get a return.

Alternative Methods

And if all else fails, it’s time to contact a loan shark. We’re joking, of course, but there are other methods available if the ones stated above don’t work. Methods like crowd-funding or peer-to-peer lending have become popular in recent years as a way to raise funds for a business venture. Again, this may come at a high-interest rate or have shorter repayment terms than traditional methods like bank loans.

Don't forget to bring professional help to the deal

There are times when DIY just doesn't work, and there's no way to break that gently in this case. There are also times when getting the right advice is an excellent investment. Even for the most seasoned of business people, doing everything that's required to value and purchase an ongoing business is basically impossible.

It can be tempting for some to try and keep costs down when looking for a business, but it's never a good move to cut corners. It's far wiser to budget appropriately for the whole process, and having the right legal help is an essential part of that.

The quality of business and legal advice you source might well form the difference between success and failure. Buying a business is not a time to play things by ear, and even the smallest of details can equate to many thousands of pounds in value – or a huge mistake.

Not only that, but it's great to have a voice around that isn't swayed by emotions. For a balanced view and accurate valuation, with a problem-free sale – professional assistance is the only way to go.

Two or more heads are almost always better than one. At Accounts & Legal, we can provide the essential help you'll need to make buying your business or selling a business a success. Please don't hesitate to get in touch with our friendly, knowledgeable team on 0207 043 4000 or before you make your next move.