Acquiring an established business can be an exciting and potentially lucrative venture. Whether you’re a first-time entrepreneur, acquiring a competitor, or looking to expand your business portfolio, purchasing an existing business offers numerous advantages over starting from scratch.

However, the process can be complex and requires careful consideration. From finding and evaluating the right business to buy to closing the transaction, the road to acquisition can be convoluted and filled with various twists and turns along the way.

In this comprehensive guide, we’ll walk you through the key steps involved in buying an existing business, so you can get a sense of what the process is like.

1. Identify Suitable Businesses for Sale

The first step in buying an existing business is finding the right opportunity. It’s not about just finding an available business, but finding one that’s worth your resources and money, one that’s primed to be profitable.

• Define your criteria: Determine the industry, size, location, targets and budget that align with your goals and expertise.
• Use online platforms: Explore business-for-sale websites and marketplaces.
• Network: Reach out to business brokers, accountants, lawyers, franchisors, and industry contacts.
• Direct approach: Identify businesses you’re interested in and enquire about their willingness to sell, even if they’re not officially on the market.

When evaluating potential businesses, look for:

• Positive cash flow or growth potential
• A diverse customer base
• Strong market position
• Alignment with your skills and interests

2. Conduct Initial Due Diligence

Once you’ve identified a promising business, it’s time to gather more information. You don’t have to necessarily dive deep into the ins and outs until you begin talking terms and contracts, but it’s good to do preliminary due diligence checks on the company.

• Request an overview of the business operations, financials, and reasons for selling.
• Analyse the business’s customer base, market trends, and competition.
• Assess the company’s assets, including inventory, equipment, and intellectual property.
• Investigate any existing legal issues or potential liabilities.

3. Determining the Business’s Valuation

Accurately valuing the business is crucial to ensure you’re getting a fair deal. Common valuation methods include (but are not limited to):

• Asset-based valuation: Calculating the net value of all assets.
• Earnings multiplier: Based on the business’s profitability and industry standards.
• Discounted cash flow: Projecting future cash flows and determining their present value.

For more information about valuing a business, read our comprehensive guide.

Consider engaging a professional business valuation expert or accountant to help you arrive at a fair and accurate valuation.

4. Negotiate Terms and Structure the Deal

With a valuation in hand, you can begin negotiations with the seller.

Key points to discuss include:

• Business purchase price and payment terms
• Assets and liabilities included in the sale
• Non-compete agreements
• Transition period and training
• Employee retention
• Restructuring
• CEO exit strategies (if applicable)

Consider whether you want to structure the deal as an asset purchase or a share purchase, as this can have significant legal and tax implications.

5. Secure Financing

Unless you’re in a position to buy the business outright, you’ll need to arrange financing. This could be through traditional bank loans or SBA loans, equity investors or seller financing.

Each option has its pros and cons, so consult with a financial advisor to determine the best approach for your situation. It’s also worth consulting with professional tax advisors and business strategists like Hamlyns to determine the most tax-efficient route possible towards a seamless and healthy acquisition.

6. Conduct Comprehensive Due Diligence

Before finalising the deal, it’s crucial to conduct thorough, more in-depth due diligence than in the initial stages.

This process typically involves:

• A detailed financial audit
• Legal reviews of contracts, leases, and other agreements
• Examination of tax returns and potential liabilities
• Assessment of intellectual property rights
• Evaluation of employee contracts and benefits
• Review of customer and supplier relationships
• Analysis of operational processes and systems

7. Finalise the Purchase Agreement

Work with a qualified, reputable solicitor to draft and review the purchase agreement. This document should cover:

• Final purchase price and payment terms
• Assets and liabilities included in the sale
• Conditions for closing
• Non-disclosure and confidentiality clauses
• Provisions for post-sale transition and support

8. Close the Deal

Once all conditions are met and financing is secured, you can proceed with closing the deal. The process involves transferring funds, assets, and licences, notifying employees, suppliers, and customers, and signing the final documents making the business purchase official.

9. Post-Acquisition Stages

After acquiring the business, focus on a smooth transition:

• Communicate clearly with employees and stakeholders
• Review and optimise existing processes
• Identify areas for growth and improvement
• Develop a strategic business plan for the business’s future

Legal and Tax Considerations

Throughout the acquisition process, be mindful of legal and tax implications:

• Ensure compliance with all relevant regulations, including corporation tax and Capital Gains Tax (CGT) on any disbursed property
• Consider the tax consequences of the deal structure
• Plan for any changes in the business’s tax status post-acquisition
• Address any outstanding legal issues or potential liabilities

Consult With Professional Business Accountants and Tax Advisors

Navigating the complexities of buying an existing business can be challenging. At Hamlyns, our team of experienced chartered accountants and business advisors can provide invaluable support throughout the acquisition process.

Whether it’s comprehensive business valuations, due diligence checks, financial projections, or tax planning and business structuring advice, our expertise can help you make informed decisions while mitigating potential risks. With our professional accounting and tax advice, we can help you maximise the financial potential of your exciting new business venture.

If you’re considering buying an existing business and would like expert assistance, don’t hesitate to contact Hamlyns. Our team is ready to support you every step of the way.