Buying a business
Buying a business is a complex multi-step process that needs careful consideration. Every business, depending on its nature, will come with specific challenges during the buying process.
It’s worth familiarising yourself with the general process to ensure that you’re aware of the steps that will take place.
The below guide to buying a business will serve as a great introduction on your purchasing journey. Or reach out to our sector experts for more sector specific information on buying a business.
What to do before buying a business?
Careful market research
One of the most important things to consider when buying a business is diligent market research. For a business to thrive, it has to meet the needs of its target audience and it has to occupy a carefully thought-out position in its market. To buy and run a successful business, you need to begin by carrying out market research to understand the market, customers, and their needs. Ascertain whether or not there is enough demand for the product or service – and be realistic about it. We are able to assist with independent and objective views from a variety of people who fit into your target market.
Thorough financial understanding
Successful business owners go to great lengths to establish a deep understanding of the financial side of their businesses and prospective businesses. Our partners at Christie Finance are on hand to assist you to provide the commercial mortgage advice to secure you the business you want. It is essential to do the financial maths before making an offer to ensure that the business will be able to keep afloat in the first few months of your takeover.
The right choice of location
For many businesses, location is key. A successful business meets the needs of its local market and is located in a place where its target audience can get to it easily. Location considerations should take into account competition: if there are several other businesses doing exactly what you intend to do, your business may struggle to compete. Locate your business in a place where there is a clear gap in the market, or surplus demand for the service you are providing.
Finding the right business property
Naturally, you’ll have more choice if you’re flexible about where you look. Our local experts are on hand to help you research the region and its suitability, and the business market.
Build up some written notes based on your conversations, research, internet browsing and various enquiries. Cover the following areas:
- Personal questions: housing, schools and amenities.
- Business questions: competition, location and other local businesses.
- Local area: demographics, communications and transport.
Preparation is crucial, not only because you’ll be thinking clearly about your new venture, but also because you’ll be showing your lender that you’ve done so. The more precise you can be, the better.
Searching for businesses for sale
is relatively simple via our Business Search
. We can provide you with information about businesses for sale and one of our agents can conduct a search on your behalf. Please get in touch for more information.
If you do the search yourself, it should be methodical. You should already have an idea of the type of business you’d like to buy and why. You should have an idea of how much money you are going to invest and how much you need to borrow. Christie Finance will be able to assist you with all your enquiries here.
You will also need to contact a business finance broker such as Christie Finance; a solicitor and an accountant, who’ll work for you during the acquisition process. Ideally, they will have previous experience of your market sector.
Divide your attention into five areas and get as much information as possible about each:
- Locality; where you’ll be living; a personal choice for you and potentially your family. Think about schools, transport, amenities, culture, climate, etc.
- Location; usually of prime importance to the success of a business, dictating where your customers will predominantly originate. Also think about competitors, local trading conditions, average local house prices, etc.
- Tenure; whether the business is freehold or leasehold; primarily a matter of time and money. Think about both the long term and the short term, and how much you can afford.
- Building; the physical state of the building which contains the business, and on which it depends. Think about its condition, any repairs needed, and any alterations required to meet trading regulations or for expansion, parking and access.
- Business; the financial state of the business. Think about how the accounts reflect its performance; compare this with similar businesses.
The more information you can gather, the better. You can use it to find out more by asking informed and intelligent questions of the sellers and their agent, or to check whether they’re being straight with you. Remember, facts are the key here – not only those you can check with local authorities or simply by seeing the property, but also those to do with reputation, competitors and, of course, your own instinct. Before you view, consider doing the following:
Using the business as a customer, if possible.
Sending a friend to use the business as a customer.
Watching the business at various times of the day to see how many customers go in or pass by.
Checking on the weekend trade at pubs, restaurants and hotels.
Talking subtly to competitors.
On the viewing day, dress appropriately – think about the impression you want to create. Arrive early and get a good feel for the area. Ask yourself these questions:
Do you want to own this business? Why?
What are its advantages and disadvantages? Why?
Would you want to be a customer/client of this business? Why?
What other businesses of this type have been for sale in the last year? Have they sold or not? Why?
Why is this business on the market? Be aware of as many reasons as you can; be ready to ask the owners polite, direct questions to ascertain their real reasons for selling.
How long have these owners been here?
What was the business like before they bought it?
The steps of buying a business
After thorough research and preparation, you’ll feel ready to buy the right business. Below are the buying steps you’re likely to encounter.
Make a formal offer
The asking price for a business is typically negotiable and the seller may will push back on your initial offer. When making your offer, and if it’s under the asking price, be prepared to reason why you think your offer should be accepted. In your offer, highlight any incentives for the seller such as if you are a cash buyer or prepared to move through the process quickly. You can also offer more than the asking price to secure the business if your projected numbers show that you’re likely to recuperate the costs fast. You can sometimes find yourself in a bidding war with other buyers and it’s important to not get caught up in the thrill of it all. Decide on the largest amount you’re prepared to pay, referencing those financial calculations again, and stick to it.
When you reach an agreement with the seller regarding the basic price, structure and terms of transaction, you typically enter into what is known as a ‘Heads of Terms’ agreement. This document means that the parties have agreed to the price and basic terms and principles of the transaction.
Due diligence is a vital part of the business buying process as the buying process doesn’t end at the offer acceptance stage. Due diligence is your chance to investigate the business you’re buying in more detail, with professional help if you need it. At this stage, you can look into the business’s accounts, VAT returns, employment contracts, and capital equipment leases. We advise professional advice as a necessity during this step, to ensure that you’re looking at all the right parts and assessing them within the best parameters. Once due diligence has been completed and you’re happy with all the information, then you’re ready to proceed to the next steps.
Complete the purchase
The final step in completing your purchase in sealing and signing the sales agreement. A sales agreement will outline and finalise all the previous ‘Heads of Terms’ discussed alongside any changes. You may wish to consult with a professional at this stage too, ensuring that all details and changes correspond to what has been previously discussed. Look out for any vaguely-worded terms that you may need further clarification on. Once signed, you’ll need to pay the seller within the agreed timescale, as stipulated in the contract.
This is the final step that officially makes you a new business owner.
For more information; download our buying a business guide to get started. You will also find the latest business insights and expertise, along with other invaluable business tips on our blog.
To make a formal offer on a business, please Download our Formal Offer Form