There has been plenty of talk over the past year or two about this being the age of the entrepreneur. In fact, it seems that practically everyone is starting up a new business these days. However, from a pragmatic point of view, it can often be quicker and easier to buy a company that is already established than trying to start one from scratch. If you are considering doing just that, here are some factors to keep in mind.
It is important to look beyond the balance sheet when choosing a business to buy. Of course its financial health and stability are important, but so is choosing something that is aligned with your own skills and aspirations. Even on Dragon’s Den, the hard-nosed business people often turn down investments because they do not appeal to them on a personal level, even if they look highly profitable.
There are a number of methods that can be used to value a business and it is vital that you get professional support at this stage. Your accountant can certainly act as a valuable sounding board, but also speak to a professional corporate financier before making any irrevocable decisions. As well as its most recent financial records, factors such as future business strategy, customer goodwill, the regulatory or competitive environment and, not least, the reason it is being sold, will all have an influence.
Following offer and acceptance, there will be a period of due diligence to get an in-depth understanding of what you are buying. This will have at least three aspects: legal, financial and commercial, and be prepared to appoint different experts for each part. The due diligence process should not get underway until price and terms have been agreed between you and the seller, as these will materially affect the due diligence process.
Before you complete the sale, it could make sense to agree a transition period with the seller so that the operation can continue with minimal interruption while you go through the legal mechanics of taking formal ownership. These will include things like drawing up director agreements, transferring leases, ensuring the VAT registration is in order and so on.
Throughout the purchase and due diligence process, you will have spent plenty of time talking about the various assets the business might possess. The most important assets by far, though, are the ones with arms and legs that come in every day and keep the business running. A change of ownership can be a stressful time, and people will wonder whether their jobs are secure or working conditions will change. Tread carefully and minimise any changes, at least over the first few months. Adopting a “business as usual” approach will work wonders to maintain staff motivation. Also, be sure to communicate, and remember that this is a two-way process. Canvass opinion from the workforce on what changes they would like to see, and treat every suggestion with attention and respect.
We are the UK's most popular vendor of template legal agreements, trusted by thousands of businesses every year.
Our templates are the cheapest of any available and, with the help of a leading UK law firm, the best quality too! Learn more here.