Making an offer on a business

How to buy a business

Hopefully, you’ve found the business that’s perfect for you and can’t wait to get the keys to the door. Before you can take the rudder, though, you’ll need to make the right offer and negotiate the deal. So what do you need to consider?

All aboard

If your new business depends on the talent, goodwill and loyalty of its staff, you might want to give some thought as to how you plan to hold on to them and what would happen if a few key members of the team decided to leave. Under the government’s TUPE regulations, existing employees will automatically have their contracts transferred lock, stock and barrel to the new owner but there’s nothing to stop individuals from handing in their notice at any point. If you don’t want the business without the staff, ensure you make the retention of named staff a condition of your offer.

The devil’s in the detail

Every business purchase is different. Yours may be a straightforward bid to buy out a coveted brand or to acquire a healthy customer base in a market aligned to an existing business. If you’re in the market for the complete package, though – premises, stock, equipment, website and forward orders – you’ll want to make sure your proposal covers every angle. If business premises are part of the deal, check the terms of the existing lease and request an extension if you need one. If you’re planning some changes to the nature of the business, agree a licence change as part of your terms, too.

Making the figures add up

If you’ve had your offer accepted, you and the vendor will have already agreed on a fair price. This will likely be based on a range of factors, including profitability, assets, customer pipeline and goodwill. Whatever the level of your offer, make sure you back up your investment with hard facts. Ask to see the balance sheets, income and cash flow statements, plus a minimum of three years’ worth of tax returns. Look for a consistent record of payments and receipts as well as a viable profit margin and a healthy cash flow plus existing customer contracts.

Get the timings right

Timing is everything, so give some thought to your preferred timescale for completion. It usually takes a period of some months – usually between three and eight – to acquire a business. The more complex the agreement, the longer the timescale. If you’re buying little more than a brand and a customer base, negotiations may be quickly concluded; if you’re acquiring staff, premises and assets, the level of due diligence increases and generally takes more time. You can make a completion date part of your terms and conditions but, if you do, you’ll need to be prepared to conduct your own legal and financial processes promptly.

What happens next?

Once you’ve reached an agreement with a buyer in principal as to the basic price, structure and terms of transaction, you typically enter into a ‘Heads of Terms’ agreement. This agreement is typically drafted by the buyer and acts as a letter of intent of both parties to close the transaction along the lines of the terms presented. Both sides agree to a completion period and undertake their due diligence, after which a sale agreement will be drawn up and signed to seal the deal.

It goes without saying that any buyer will need the support of an experienced team including a solicitor, accountant and financial adviser to help them secure the best possible deal.

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