Buying a business can be a great way to get into a new market, or to expand an existing business through acquiring a competitor or supplier.
However, there’s a range of factors you need to consider before making a purchase. Here, we’ve compiled a guide to buying a business in the UK.
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I want to buy a business… or do I?
So you’ve decided you want to buy a business. There’s a number of reasons why you might want to do this. For example:
- You have some capital that you want to invest, but you don’t have the time to get a new business off the ground
- You have identified a struggling business that you think you can turn around, for example by bringing your own expertise to it
- You already run your own business, and want to grow through acquisition, for example of a competitor or supplier.
However, there are some important factors that you need to bear in mind before you take the leap. Not every business is an attractive investment proposition, and there are a few things that you need to look out for.
- Buying a business can be an extremely lengthy process. It’s crucial that you set aside enough time for due diligence
- It’s likely that any business you buy will have existing contracts in place, for example with suppliers, and you will likely have to honour or renegotiate these
- Buying a business will almost certainly involve paying for professional services such as lawyers and accountants
- Even with the most extensive due diligence conducted, businesses can have hidden problems that you might not grasp until you are ‘on the ground’
- If the business you are buying has existing staff, you will need to ensure that you have them on side when the purchase is made
Buying a business can be a sound investment – but you need to make sure that you’ve considered all of these potential problems before you take the leap.
Strapped for cash? How to buy a business with no money
So buying a business seems attractive – but what if you don’t have the capital to begin with? Luckily, there is a range of alternative finance options that could help you buy a business with no money.
- Leverage your new assets. When you acquire the business, you will own its assets. You can use this to your advantage in advance. In some cases, you may be able to approach banks or other lenders and ask them to provide finance against the assets you want to buy. However, make sure that you are clear about any liabilities, and that these are taken into account when applying for finance.
- Form a co-op. The co-op model is enjoying a resurgence, and can be a good way to buy a business with limited funds. By banding together with other investors, you may be able to buy a stake with a significantly lower outlay. Remember, however, that you’ll need a watertight partnership agreement with the other investing parties.
- Look at franchising. Buying into a franchise can be another great way to buy an existing business infrastructure with limited funds. There’s a huge range of franchisors across the UK and beyond, and many of these can present a valuable opportunity to plug into a brand that’s already successful.
How to buy a business name
While you’re thinking about buying a business, you might also be thinking about names. This might be the case if you already have an idea but you’re not quite ready to get started on your project.
There’s a common misconception that you need to ‘buy’ a business name. This isn’t strictly true - business names themselves aren’t normally traded in this way.
However, if you want to reserve a name so that you can start trading under it in the future, your best bet is to register a company with Companies House using that unique name.
You can search the Companies House records to make sure that nobody has taken it already. You’ll then simply need to register a company with at least one director and at least one share issued. If you want, you can make the company dormant until you’re ready to trade.
How to buy a business from a family member
Family succession is common in business, but in order to make it work it needs to be managed carefully.
You can buy a business from a family member just as you would from anyone else, but it’s worth thinking about the tax implications for the family member who’s selling up. The seller may be eligible for Entrepreneurs’ Relief, which can help to lower their Capital Gains Tax bill when they sell shares in a business or all or part of a business run as a sole trader or as part of a partnership.
You should also think carefully about managing the transition for any employees. Family succession can cause internal problems when it is felt that a family member is being parachuted into a role that should otherwise have fallen to an employee.
Close and open communication with employees at every level is crucial if you want to successfully manage a business that you’re buying from a family member.
Buying an existing business can be a great way to gain a foothold in a market or expand through acquisition. As long as you tread carefully, buying a business can help you achieve your long-term goals.
If you’re unsure about the idea of buying a business, you could always start your own. Take a look at these small business start up ideas for a bit of inspiration.
Have you come across any challenges when buying a business? Let us know below.