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6 considerations if you want to buy an established business

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Most important of all, somebody else has made all the “rookie” mistakes so you don’t have to. If you choose this route though, there are a number of things to consider. The tips below highlight six of the most important issues for a first-time business buyer to think about.

1. What kind of business do you want?

It is rarely a good idea to buy a business that you do not understand, or in a sector of which you have little commercial experience. If you are borrowing money to help fund your purchase the lender will want to see a track record in the sector – and with good reason. As well as experience you also need enthusiasm for the type of business you are buying.

2. Location

One of your reasons for buying a business might be to work closer to home, or to enable you to relocate to another part of the country. You also need to be realistic, however, and understand that maximum convenience for the owner is not always compatible with business success.

If you will rely on passing trade then you need a location with plenty of footfall from the right kind of customers. If you will be employing staff then they, too, will need to be able to get to work (so think about public transport and/or parking) and, ideally, have access to nearby amenities.

3. Finance

Many buyers will need, or want, to finance their purchase using a loan. High street banks and a wide range of specialist lenders, who can be accessed via brokers, offer packages to help fund business purchases.

A bank will generally lend up to 70%t of the purchase price, depending on the business, its sector, the strength of your business plan, the quality of your collateral and your credit rating. Commercial loans will usually be secured against your assets, which means your personal property will be at risk if you are unable to make the repayments.

4. Shares or assets?

Broadly speaking, vendors either sell their shares in the limited company that operates the business or they just sell assets and “goodwill” (reputation and customer base). If you buy the shares in the company all supplier agreements, customer and staff contracts will remain in place – effectively the only thing that changes is the name of the owner.

The downside of purchasing a limited company is that any liabilities it might have incurred in the past will also transfer with it. An assets and goodwill sale leaves most liabilities (other than staff) behind but, on the other hand, supplier agreements and customer contracts will need to be renegotiated.

5. Freehold or leasehold?

Businesses that include premises will be sold on either a freehold or leasehold basis. If you purchase a freehold business then you – or your company – will own the property outright, in perpetuity, which is why these premises tend to be more expensive.

If you buy a leasehold business you will be committing to paying rent to a landlord and there will often also be an initial amount payable to the existing leaseholder. If buying a leasehold business you should check the terms of the lease carefully to ensure you understand its terms, conditions and any additional costs you are signing up to.

6. Staff

If you buy a limited company then its staff come with it automatically – the company is their employer, and you are simply the new owner of the shares in the company. In an assets and goodwill sale the staff will also usually transfer to you under a set of regulations known as TUPE.

This depends on your precise plans for the business so you may need to speak to an employment lawyer for a clear picture. Staff transferring under TUPE will need new contracts, which should be broadly comparable to those they had before you took over.

Chris Rowlands is the founder and managing director of Blacks Business Brokers, a national business transfer specialist based in Bury, Greater Manchester.

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