A Complete Guide To Buying A Business In The UK

Many aspiring business owners begin not by starting their own business, but by buying a business. Starting a business from scratch can be very hard, so buying an already-established business is a good way to get started. It will already have a customer base, established suppliers, and perhaps even premises, a team of employees, or other assets, allowing you to easily step in as the new business owner. There are many considerations with buying a business that you should be aware of – this blog covers how to find the right business for you, how to find your ideal business for sale, potential pitfalls of buying a business, and more.

Table of Contents

How to Find The Right Business To Buy
Pros and Cons of Buying a Business
Essential Research Before Buying a Business
Securing Finance
Business Valuation
Due Diligence
Exchange of Contract & Completion

How to Find The Right Business To Buy

You may already have in mind the type of business you are interested in buying, due to your own past experience or a personal interest. It’s always recommended to have some level of understanding of the industry the business operates in – buying a business in an area you know nothing about can spell disaster. Whatever the industry, the same general rules apply when searching for a business to buy. You can look online to find businesses to buy on sites like Rightbiz, BusinessesForSale or Daltons Business, although you may find the best deals on the most successful businesses are found through your professional network, so take some time to build connections with people in your industry of choice. You could also contact a business broker who can help find the ideal business for you to buy.

Pros and Cons of Buying a Business

Pros of Buying a Business

An established business will already have a proven product or service, a customer base, trusted suppliers and a reliable source of income.
It can be easier to obtain finance to buy an established business, as it will have a track record of being profitable.
You can expect immediate cash flow from an existing business.
An established business may already have a strong reputation and branding that could be years in the making.
If the business has employees, you can draw on their knowledge and experience for continued success.
Someone else has done the groundwork to start the business, from initial business planning and problem-solving to advertising and marketing.
There is an opportunity to acquire valuable intellectual property or technology owned by the business.

Cons of Buying a Business

You may need to invest a large amount of money upfront to secure a business worth buying. Remember to budget for accountants and legal fees too.
Some businesses for sale aren’t always doing well – even if the accounts look good on paper, there could be hidden costs or upcoming expenses you may not be aware of.
There could be other non-financial problems too – try and find out the reason for a business sale when looking to buy a business.
Existing employees could be opposed to the sale and may quit, or be resistant to any changes.
The business may rely on outdated systems and processes, and it can be costly to update them. Similarly, existing employees could be unwilling to adapt to new changes.

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Securing Finance

Securing finance for buying a business can be tricky, but there are several different sources of finance you can use. You can borrow money from a bank with a secured or unsecured loan – a secured loan is where you put up something of yours, e.g., a property, for collateral, like with a mortgage. Other options, like government grants and loans such as the Start Up Loan Scheme, can be used for buying a business, often with more favourable terms than loans from a bank. A broker can help you find a loan that is most suitable for you.

Grants are ideal, as you do not have to pay them back, but you are unlikely to raise the full capital required with just a grant, so you would also need another source of funding. You could also source the money needed for buying a business from other investors, e.g. angel investors, venture capitalists or private equity.

Going into business with a partner can help, as they can contribute their own money, although this will mean you have to split the profits with them too. You could also borrow money from family or friends, although this can make the relationship very complicated very quickly if you do not pay them back on agreed terms. Much like other investments, you can use your own money if you have enough capital available.

Business Valuation

You should understand the true worth of a business before making an offer, as the seller’s price may not reflect the actual value of the business. A valuation should take into account the size of the business, the circumstances of the sale, i.e. voluntary or forced, the value of the business’s assets, both tangible, like premises or equipment and intangible, like cash flow and projected profits. Also, take into account the durability of these assets under current and projected economic conditions – some businesses are more resilient to an economic downturn than others. Using an accountant, broker or business transfer agent can help you find an accurate business valuation.

Due Diligence

Performing due diligence is essential when buying a business. This step helps to uncover any legal, financial and operational risks carried by the business. You should take a good look at the business accounts, including cash flow, debts, tax returns and forecasts, plus the legal position of the business – look at contracts with suppliers, landlords and customers and employees. At this stage, you should also ensure that the business complies with all relevant laws, including health and safety, GDPR and other regulations specific to the industry. It’s well worth engaging the services of a consultant, accountant or solicitor experienced in due diligence, as they can help you spot hidden issues that can cause problems after the sale. Be prepared at this point to walk away if there are serious issues that will affect the business’s profitability.

Exchange of Contract & Completion

Okay, so you have completed all the above steps, made an offer based on this, and it has been accepted – congratulations, you are now a business owner! The next step is to finalise legal documents that outline the terms of the acquisition, i.e. the sale and purchase agreement. This will include the purchase price and payment terms, all warranties and indemnities, such as promises about the business’s condition and financial strength, plus any protections in case, for example, you receive a hidden tax bill. This may include any conditions that must be fulfilled before the sale is complete, such as regulatory sign-off or assignment of key contracts, and even restrictive covenants to keep the seller from competing directly with you or poaching staff or clients after the sale. This should also include any intellectual property rights, trademarks, customer databases and domain names that are transferred along with the business to you. Much like the sale of a property, a solicitor or conveyancer who is experienced in business sales can help you exchange contracts and complete the sale.

Buying a business can be a faster, more secure route into entrepreneurship than starting from scratch. With the right research, due diligence, and expert support, you can take over a business that’s already up and running and make it your own. Whether you’re buying your first business or expanding your portfolio, taking the time to understand the process will set you up for long-term success.

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