Most people wouldn’t dream of spending a vast amount of money without serious planning and consideration. It would be foolish and naive to jump into a deal without giving it some serious thought. So, if you are set on buying a UK business in the near future, it makes sense to research, plan and understand the transaction you are entering into.
Based on our 45+ years’ experience as business brokers, vendors and their teams take buyers more seriously when they can see they have done their homework. It’s quite refreshing to witness such knowledge and enthusiasm. You’ll appear more credible and trustworthy, which can put you at an advantage over other interested buyers. Thinking about what to do before you buy a business will also help you prepare a realistic offer that’s more likely to be accepted.
Economic pressures in the UK, in the form of rising tax, wage bills and costs of employment, plus unstable international markets are all key considerations in many business owners’ decisions to sell. When you factor in the natural cycle of owners reaching retirement age, it means plenty of new and interesting opportunities for serious buyers to get a great deal.
In this article we share advice for buyers preparing to buy a UK business. Our seven tips give you practical guidance on planning and researching your purchase before you even speak to a vendor, business broker, or make an offer. And the best part is, you can start right now!
To avoid delays in the buying process, here are some things to consider if you are serious about acquiring a business.
First, decide on the sector or industry you’re interested in. Do you intend to buy in your current sector/industry and use your existing skill set, invest in a complementary business, or would you like to challenge yourself with something completely different?
Build your shortlist by identifying businesses you are interested in. Consult Businesses for Sale listings, map out preferred locations, and list the reasons why those companies interest you. A broker will ask you these kind of questions to qualify that you are a genuine buyer.
Bear in mind your ideal business isn’t always available for sale, so be ready to compromise on some of your criteria. One of the advantages of using a business broker is they have insight and access to listings not yet on the open market.
Focus on your top three businesses – those with the strongest potential – and analyse them in more detail to see if they appear to be a good investment. Download their summary accounts from Companies House (a broker will usually provide full accounts after you complete a confidentiality NDA), search their website and social media presence for positive signs of growth potential. Look for recent contract wins, staff recruitment, or an expanding product/service range.
Think about the structure and setup of your ideal business. Are you looking for a service area business, an online business, or one with established premises that you can own too? Do you intend to relocate the business? Are you willing to take on their employees? Would you prefer the existing management team to stay on after the sale? These are all key questions to consider.
Your budget defines the scope of your search. As a general rule, smaller budgets usually mean buying a business with no management team in place. This is fine if you intend to be involved in running the business, but not if you want to be more of a hands-off owner. If you need to stretch your budget, read item 6 below.
Every buyer needs a trustworthy solicitor and accountant to support them through due diligence and the sale process. Appointing these people early will avoid delays and demonstrate that you are a serious buyer. If you don’t have professionals you can rely on and have appointed a business broker, they will be able to make referrals.
If you don’t intend to self-finance, research commercial lenders (either independents or through your own bank) to find out how much you are eligible to borrow, and on what terms. Know your lending limits and factor this into your offer. You should never make an offer to buy a business before knowing how much you can borrow. When this happens, buyers end up restructuring their offer during due diligence, which wastes everyone’s time and erodes trust with the vendor.
When considering borrowing to fund your purchase, it’s important to calculate if the business’ projected profits can support the loan repayments, otherwise the investment may not be sustainable. No owner wants to compromise on profit or salary in the long term. Even the slightest change within the business, such as losing a key customer, can have a huge impact if borrowing has not been carefully planned and structured.Â
Useful research contacts include British Business Bank and Funding Circle.
While you may not have every piece of financial information until you reach due diligence, you can use the data you do have to start forecasting cash flow for the next 2-3 years. This should help you understand how introducing new debt may impact liquidity. When you’re on top of and know your numbers, it puts you in a better position to negotiate over assets that may or may not be included in the sale.
Whether you’re buying your first business or expanding your portfolio, our Business Partnership brokers are here to guide you through the process of buying a business. Our experienced, friendly team can help you make informed decisions and secure the right opportunity. Ready to start your search? Browse our businesses for sale, or contact your Regional Partner
Whether you’re selling, buying, or planning for the future, Business Partnership is here to help. Contact us today to speak with your local Regional Partner and start your journey toward success.