New Year, New Business – considering a business acquisition?
Is this the New Year when you’ll buy the new business you’ve always dreamed of owning? Do you have the desire to take control of your own future?
January is traditionally the month for making a change and doing something different with your life. Some people opt for a healthier lifestyle, or take up a new hobby; others may take the leap and pursue a complete career change and buy a new business.
The decision to buy a new business isn’t one to be taken lightly, yet for many it’s a way to pursue a longed for dream of entrepreneurship. By buying an established business with a recognised brand, a readymade customer base, employees, suppliers and premises, you can really hit the ground running.
New business acquisitions
If purchasing a business is the change you plan to make this year, using the knowledge of a professional to guide you through the process can really help.
You have probably researched your preferred business sector back to front, but do you know how to buy the right business and avoid the wrong one.
When advising our clients on acquisition we help buyers at various stages of the purchasing process.Sometimes buyers engage us from day one, to help them source the right opportunity, whilst others need help at the point of negotiating a deal.
If you’ve found your ideal business and want to make the right start when you take over the reigns, read on for our essential guide to what happens next in the buying process.
How to make your offer
Consider every aspect of the business you intend to buy including assets like land, property and people. Be absolutely clear on what you want and what you expect to be included in your purchase. Such as
Terms & Conditions
- What are you buying? Sales can be for the goodwill and assets of a business, or in the case of a limited company, for the shares of that company. There are slightly different tax implications on each, so take advice. Perhaps more importantly how does the status affect the businesses relationship with the customers?
- Does the business have premises. Are these owned or leased? Do you intend to purchase the premises if they are owned? If they are leased, do you want to alter the lease?
- Would you like furniture, fixtures and fittings to be included? Mechanic tools are often personally owned, so be clear on what the vendor intends to remove. e.g. Is it a company laptop or personally owned? What about Intellectual Property, e.g. the website?
- How much stock is held by the business? What is its value, is it all saleable? Is it included in the price? Do you need to limit the value that you can pay?
- Do you understand your obligations under TUPE with regards to staff? This requires expert advice or you could end up in an unfair dismissal hearing.
- Who are the key members of staff and how do you plan to retain them? You might have to incentivise them to remain and can build this into the terms of your offer.
- Are there any customer or supplier contracts you’d like included in the deal? Perhaps a key customer is due to renew their contract. You may want to include this renewal (and the vendors assistance in securing it) into your offer
A vendor can hand you the keys and walk away, or you can ask for a period of dual working to ensure a smooth handover.
- What handover period would you like to have with the current owner?
- Are there any key activities or processes you will need to shadow or understand before taking over?
- How do you retain their attention once the cheque has cleared?
Timing can be a critical success factor for some businesses due to seasonality of sales. Retailers and restaurants will be busiest at Christmas, whereas a gym’s membership is likely to increase for the January health kick. You’ll also want to give yourself time to settle in and get used to the business and your new team, to meet key suppliers and customers.
- Is there a key date/month you’d like to achieve completion?
- Are there any events you need to avoid? (month long family holiday)
Acceptance or decline
If your offer is put together well and detailed, a vendor has much more opportunity to accept or decline specific aspects of it. Rather than getting a flat refusal, you may get to the one sticking point which is easily resolved.
Don’t let a £100,000 deal collapse on the disagreement of who keeps a £5,000 car. Look at the bigger picture.
What to expect from a broker
If a broker is involved in the purchase and sale, you can expect that all the details of your discussions, offer and acceptance will be summarised into a Heads Of Terms document. This is a precursor to the legal contract of sale that a solicitor will draw up. A good HOTs will minimise the background work a solicitor needs to do, give them a good starting point and effectively shorten the expected completion time.
Also ensure your broker negotiates the right exclusivity period.
It is at this point that accountants can begin conducting a detailed due diligence investigation of financial records and that negotiations are conducted with any landlords or other third parties.
The more complicated the business, the more complicated the deal structure may be. From the time HOTs are agreed to completion can often take around 12 weeks. Some will move more quickly, others take far longer. The key to this is to turn paperwork around as efficiently as possible. If you sit on a request for information and delay it, the next piece of the process cannot start. A couple of days here and there can add up to months of delay for the completion if everyone behaves the same.
Buying a business can be a long drawn-out process so it’s important to remain patient and professional at all times. Conduct yourself in a professional manner. Never assume that, as a buyer, you’re in the driving seat. This is a continuous negotiation between buyer, seller and their professional representatives.
Maintaining your credibility will improve your chances of the sale making it through to completion. It won’t be long before that dream becomes a reality.