Buying a business is an exciting opportunity, whether you are making your first acquisition or expanding an existing business or portfolio. However, the decisions you make throughout the acquisition process can have a significant impact on the success of your investment.
In this checklist, we outline the key steps involved in buying an SME in the UK, from defining what you are looking for and arranging funding to due diligence, negotiating the Purchase Agreement and completing the deal. Whilst every acquisition is different, this guide will help you understand the typical process. For expert advice tailored to your transaction, contact our business purchase solicitors.
Steps
- Negotiate Heads of Terms
- Carry out due diligence
- Negotiate and sign the Purchase Agreement
- Complete the purchase and manage the handover
- Post-completion considerations
Preparing to buy a business
Buying a business is not a decision to rush. Before pursuing an acquisition, you should be clear on why you are making the purchase, how you will fund it, what you want to achieve and what professional advice you need to ensure the transaction supports your objectives.
1. Clarify your objectives and acquisition criteria
Before looking for a business to buy, you should be clear on what you want from the acquisition and the practical factors that will shape your purchase.
Motivation
There are many reasons to buy a business, including:
- taking over your family business
- progressing your career, such as an experienced vet buying their first practice
- strengthening or diversifying an existing business
- realising a long-held ambition to own a business
Your motivation will influence how you approach the acquisition, the advice you need and what you require after completion.
Target criteria
Clearly defining what you are looking for can make it much easier to identify suitable opportunities. Consider:
- sector
- size
- location
- profitability
- specific capabilities or assets
- brand, goodwill or intellectual property
- growth potential
Funding and payment structure
You should also understand what you can afford and how the purchase will be funded. Consider:
- your maximum purchase price
- how you will fund the purchase
- any security or personal guarantees required by a lender
- whether you will pay in full on completion or in instalments, known as deferred consideration
- whether part of the price will depend on future performance, such as through an earn-out
- wider transaction costs, including professional fees and stamp duty
- how much the business will cost to run after completion
Timing
Consider how quickly you want, or need, the purchase to progress. First-time buyers may prefer more time, whilst experienced business owners may be comfortable moving faster.
Sometimes the seller will influence the timetable. For example, a struggling business or one in administration may need to be sold quickly. Whatever the circumstances, make sure you have enough time to assess the opportunity properly and take the advice you need.
Deal structure
Consider:
- whether you are looking for a full or partial acquisition
- whether the transaction will be structured as a share purchase or asset purchase
Your involvement and experience
You should consider what role you want to play in the business after completion and whether you will need additional support.
- Do you want to be actively involved in running the business or will you leave the existing management team in place?
- Do you have experience and expertise in running a business or operating within that particular sector?
- If not, what support will you need?
- Would you like the existing owner to remain involved for a period after completion to support the transition?
Keeping the existing owner involved can be particularly useful where the business is complex, highly dependent on their knowledge or relationships, or you would benefit from additional support during the handover.
2. Seek expert advice
Buying a business can involve legal, financial, tax, property and funding considerations. Bringing the right advisers in early can help you assess opportunities properly and avoid costly mistakes.
Corporate and commercial solicitors
An experienced corporate and commercial solicitor can help you take a broad view of the acquisition, ensuring the transaction aligns with your objectives and guiding you through the process from Heads of Terms to completion.
Accountants and tax advisers
Accountants can help you assess the financial health and value of a business, decide how to structure the deal, understand the tax implications of your purchase and identify potential financial risks.
Business brokers
If you have not already found the business you want to buy, a broker can help you identify suitable opportunities, approach sellers and assess valuations.
Lenders and finance advisers
If you need external funding, speaking to a lender or finance adviser early can help you understand your options, how much you may be able to borrow and any likely requirements.
Commercial property solicitors
If the business you are purchasing owns or leases property, specialist commercial property advice may be required to review the arrangements and deal with any property aspects of the acquisition.
Having the right team in place from the outset will help ensure you understand what you are buying, identify risks early and approach negotiations from an informed position.
3. Find a business to buy
If you do not already have a business in mind, there are several ways to find suitable opportunities. You could:
- use a specialist business broker or corporate finance adviser
- approach businesses directly, for example, competitors
- use your professional network
- explore businesses advertised for sale
Your target criteria should help you narrow down the options and identify businesses worth pursuing.
Before progressing with a potential acquisition, take the time to establish whether the business appears to be a good fit. With support from your professional advisers, consider its financial performance, asking price, market position and how well it aligns with the objectives and criteria you established earlier.
At this stage, you are likely to have limited information to assess the business’s suitability. However, you will be able to delve deeper and complete a full assessment during formal due diligence.
Navigating the transaction
Having identified a suitable business, the focus shifts to negotiating and completing the transaction. This is the most complex and important stage of the acquisition process, with decisions made here having significant legal, financial and commercial implications.
4. Negotiate Heads of Terms
Heads of Terms set out the key commercial terms you have agreed with the seller and provide a framework for the transaction. Whilst they are not usually legally binding, agreeing the main points early can help avoid disagreements later that could delay or derail the purchase.
Typically, Heads of Terms cover matters such as:
- purchase price
- whether you are buying shares or assets
- what is included in the purchase
- payment terms
- timescales
- any involvement from the seller after completion
As a buyer, you may also want to agree a period of exclusivity, preventing the seller from negotiating with other potential buyers whilst you invest time and money in due diligence and progressing the transaction. Although Heads of Terms are generally not legally binding, certain provisions can be expressed to be binding, including any exclusivity or lock-out arrangements, confidentiality obligations and provisions dealing with costs.
At Scott Bailey, our experienced solicitors help clients negotiate, draft and review Heads of Terms to ensure they accurately reflect what has been agreed and protect their position.
5. Carry out due diligence
Due diligence gives you the opportunity to investigate the business properly before committing to the purchase. Your advisers will review the information provided by the seller to identify risks, verify key information and establish whether anything should affect the price, terms or your decision to proceed.
The scope will depend on the business and transaction, but key areas typically include:
Financial position
Your accountant will review accounts, bank statements and other financial records to assess the business’s performance, quality and consistency of earnings, liabilities and overall financial position.
Company documents and legal matters
Your solicitor will review relevant company documents, ownership records and corporate filings, alongside matters such as regulatory compliance, insurance and any existing or potential disputes.
Commercial contracts
Key customer, supplier and partner contracts should be reviewed to understand their terms, whether they can continue after the purchase and how dependent the business is on particular relationships.
Employees and TUPE
You will need to understand who works for the business, their roles, contracts and employment arrangements. With an asset purchase, employees will often transfer to you under TUPE, preserving their existing terms and conditions.
Intellectual property and assets
Establish what assets and intellectual property the business owns, whether ownership is clear and whether everything you expect to acquire can be transferred to you.
Property
If the business owns or leases premises, your commercial property solicitor will review the relevant title or lease documentation and identify any consents, restrictions or other issues that could affect the purchase.
Operations and key dependencies
Consider how easily the business can continue operating after completion. This includes its processes and IT systems, reliance on key individuals and whether a significant proportion of revenue or supply depends on one customer or supplier.
Due diligence can uncover issues that require further investigation, additional protections in the Purchase Agreement or, in some cases, a renegotiation of the price. It is therefore essential to approach the process thoroughly and with support from the right professional advisers.
At Scott Bailey, our team brings together expertise across corporate and commercial law, commercial property, employment, intellectual property and mergers and acquisitions. Drawing on our broad expertise, we can help you assess the full picture, identify potential issues early, understand their implications and make informed decisions about how to proceed.
6. Negotiate and sign the Purchase Agreement
Once due diligence is complete, the terms of the transaction can be finalised in the Purchase Agreement. This is one of the most important stages of the process, as the agreement determines what you are buying, what you will pay and the protections available to you if problems emerge after completion.
Key areas include:
Price and payment structure
Due diligence may uncover information that affects the value of the business, giving you grounds to renegotiate the price or payment terms agreed in the Heads of Terms.
The Purchase Agreement should also clearly record whether payment will be made in full on completion, deferred or linked to future performance.
Warranties and indemnities
Warranties are contractual statements made by the seller about the business. If they later prove inaccurate and you suffer a loss, you may have grounds to make a claim.
Indemnities provide more specific protection against identified risks, requiring the seller to cover losses if a particular issue arises after completion. Buyers will generally seek strong protections, whilst sellers will look to limit their exposure.
Restrictive covenants
You may want restrictions preventing the seller from immediately competing with the business, soliciting key employees or approaching customers after completion, helping protect the value of your acquisition.
Transition arrangements
If the seller will remain involved after completion, the Purchase Agreement should clearly set out their role, responsibilities and how long the arrangement will last. This can help ensure knowledge, relationships and operational responsibilities are transferred smoothly.
Completion arrangements
The Purchase Agreement should set out when completion will take place and any conditions that must be satisfied beforehand, such as obtaining finance, landlord consent or other approvals.
At Scott Bailey, our experienced business purchase solicitors negotiate and draft Purchase Agreements for SMEs, ensuring the final terms reflect what has been agreed, address issues identified during due diligence and provide appropriate protection after completion.
7. Complete the purchase and manage the handover
Once the Purchase Agreement has been signed and any outstanding conditions have been satisfied, the transaction can complete. The purchase funds will be transferred and ownership of the agreed shares or assets will pass to you.
Depending on the transaction, there may also be legal formalities to complete, such as updating company records, making Companies House filings, transferring assets or contracts and notifying relevant third parties or regulatory bodies.
The focus then shifts to taking control of the business. A handover may include transferring systems, records and operational responsibilities, communicating with employees, customers and suppliers, and working alongside the seller where transitional support has been agreed.
Planning this carefully can help minimise disruption and ensure you have everything you need to operate the business effectively from day one.
8. Post-completion considerations
Buying a business can significantly change your personal and financial circumstances. You may need to consider:
- updating your will and reviewing your estate and business succession plans
- protecting your business interests, for example through a post-nuptial agreement if you are married
- seeking advice from an accountant, tax adviser or financial adviser on how to take income from the business, manage your tax position and plan for the financial risks that come with business ownership
This may be the final step in our checklist, but you do not need to wait until your transaction completes to get started. Seeking legal and financial advice early can help ensure you are in the strongest possible position when you take ownership of your business and that both your interests and your loved ones are protected.
How Scott Bailey can help
At Scott Bailey, our experienced business purchase solicitors support entrepreneurs and business owners through every stage of purchasing an SME, from early-stage planning and due diligence to negotiating Purchase Agreements and managing the handover. To arrange a consultation with our specialist team, please get in touch.
