Buying a business can be a great way to make a profit or enter a new industry without having to do the difficult part of building and fighting to make your own way.
In some cases, buying a business can also help you out by absorbing your competitors, leaving you with a greater share of the market and more resources for your customers.
Think of that as the Disney method, where they acquire any studio that runs against them.
Whatever the reason, if you’re thinking of buying a business, there are some steps and information that you should know first. It’s not as easy as just putting money down on the table and walking away – there’s quite a bit of red tapes and legalities that you need to know.
But that’s what we’re here for, to get you started on the process and allow you to become one step closer to your goal. So, without further ado, here’s everything you need to know about how to buy a business in the UK in these 7 steps.
Step 1: Set your expectations
The first step to buying a business is to ensure that you know exactly what you’re getting yourself into.
Don’t get us wrong—we know the benefits of buying a business. It can turn investment money into an ongoing source of income, gather increased profits for your existing business, or allow you to work in the industry or field of your choosing without the hard years of work required to start a business from scratch.
But, it has to be said that not all business acquisitions work out. In some cases, you could buy a business to find out that it’s not as profitable as you think, or that it’s on the decline.
Or you could spend your investment on something that doesn’t give you the same about of return, meaning you’ll have been better off investing it elsewhere.
For example, Quaker Oats once bought Snapple, for $1.7 billion. The idea was that Quaker Oats would use all their supermarket connections and relationships to market the teas and juices that Snapple sold to small markets.
It didn’t work. A little over 2 years later, they sold Snapple for a mere $300 million. That was roughly a loss of 1.6 million for each day they owned Snapple. Ouch.
Now, you’re not playing with the same level of investment as these mega-corporation acquisitions. But the lesson still stands.
Buying a business also means that nothing happens as quickly as you expect. Most purchases are rarely impulsive, and decisions have to go through other stakeholders, too (Grewal et al., 2015).
Before entering this process make sure you’re double, triple, and extra sure that you want to buy a business – and that you’re doing it for the right reasons.
If you want to buy a business to grow existing opportunities in your sector, great. If you’re looking for a quick flip that you can sell on yourself in a few years, great. If you want to embark on a new venture and are prepared to go the extra mile, great.
Whatever the reason, make sure that you’re prepared and clearly set the expectations of what you want to achieve from the purchase. It will also help you later on in the assessment step.
FREE Download:
The Business Success Planner
Set clear goals for your business
Plan and manage your time more effectively
Brainstorm ideas and log inspirations
Stay motivated and encouraged
Step 2: Find the right business
Now the exciting part: time to find the right business to buy. And in today’s digital age, finding the right match can be easier than you think. There are many different ways to search, such as:
- Going through business brokers, who often have exclusive listings and can provide expert guidance.
- Explore brokerage websites, which showcase available businesses for sale.
- Use your business networks. Using your connections and platforms like LinkedIn can be a good way to find hidden gems and find opportunities that might not be publicly available.
- Search online marketplaces, which is similar to using platforms like Rightmove, but for businesses instead of houses.
In some cases, you might already know the business up front and want to purchase it from a family member. But if you have a family member who’s thinking of selling because of retirement or other reasons, family succession planning may be a better option than selling, depending on who you are selling to.
A succession plan is a plan for what happens if you or a partner leave the business. It helps translate ownership (or leadership positions for larger businesses) from one party to another while outlining to all employees a clear path of the change and what will happen next.
An heir succession plan outlines:
- Who takes over the business, and provides instructions for the takeover. This is particularly important if you have multiple family members eligible to take over and may fight over the position.
- Define any structural changes to the business in the event of the heir taking over.
- Outline day-to-day responsibilities and processes in the event of the takeover, ensuring the business runs smoothly through the change.
If you are looking to take over a family business as an outsider, be warned that this method of business succession is often complicated. Internal factors such as unplanned, frequent ownership transfers or unprepared successors can make purchasing difficult (Pahnke et al., 2024).
More information on family succession can be found here.
Step 3: Do your research
The key difference between making a good investment and a bad one is research. If Quaker Oats had properly researched Snapple’s market, they wouldn’t have made such a bad investment.
To make sure that buying the business you have an eye on is a good call, you’re going to have to do some thorough research. And when we say thorough, we mean it.
Although you’ll be using this research to make sure there’s no rot hiding underneath the floorboards. But more importantly, this research will focus on the current financial situation of the business and your plan for it once acquired.
In many ways, this process is like creating a regular business plan. You’ll be looking at:
- Your business objectives and goals;
- Your employees and business structure;
- Your products and how you market them;
- Your customers, competitors, and industry;
- Your financial information and forecasting.
The important thing to remember here is that you’re not just looking at the past performance of a business, but also planning on how you can ensure future success.
For more information on what you should be looking for, take a look at our guide on how to write a business plan.
As well as the above, you also want to explore aspects such as existing clients and contracts, current staff and how long the purchase will take.
Typically, when a business is purchased, it is under obligation to honour any existing clients and contracts, so this should factor into your considerations. Depending on what is decided in the negotiation, you may also be under obligation to keep existing staff members during the takeover.
Step 4: Valuation
After you’ve done your research, it’s time to start the valuation process. This is where business brokers conduct their own investigations into the business, considering factors like assets, staff, location, earnings potential, growth prospects, and more to create a true valuation of the company’s value and worth.
We can’t stress this step enough. Nothing is worse than overpaying for a company with too little cash flow. Neumann (2018) recommends avoiding one of the top five buyer mistakes: paying for potential or what a firm can yield in the future.
Getting an independent valuation gives you negotiating power. Sellers are more likely to respect your offer when you have a clear understanding of the business’s value.
Step 5: Raise capital and funding
With an independent valuation, you know exactly how much you need to pay for the business. But like buying a house or a car, you don’t always need to have the entire asking price in hand to buy. To help raise the funds, you can turn to a lender for the capital to buy, which you’ll then pay back on the terms that you agree.
In order to get an agreement with a lender, you’ll need the following details:
- details of the business and the terms of the sale;
- accounts for the last three years, or financial projections if this information isn’t available;
- details of your personal assets and liabilities.
In some cases, you may also be able to provide finance against the assets of the company you’re about to buy, as you’ll be the owner when the sale goes through.
This is only applicable for some companies though and you must require detailed records about all assets and any liabilities.
Like getting a mortgage on a house, a lender needs to check whether your investment is a good one and that you’ll be able to make back payments with a financially successful business. Lenders want to give you money to make successful businesses so that they get a return on their investment.
If buying the business is a risk, you may struggle to get the capital from the lender. For the best financial advice, including how to get a lender to approve your application, you should talk to an accountant.
Step 6: Send and negotiate your offer
If you’re ready to buy an existing business in the UK, you need to make an offer.
Once this is made, you will enter the negotiation phase. If you’ve ever bought a house, this won’t feel unfamiliar to you. During this phase, you and the business will try to agree on a price and the particular terms of the sale.
Part of this includes what buying model that you will use to purchase the company. For example, you can choose to buy the company on your own, taking over ownership and the daily running of the company.
You could, as a business, choose to merge or acquire the company into your own, combining assets for a greater boost to your own company.
In addition to these, you could also consider forming a co-op or franchising.
A co-op, as it sounds, means buying a business as part of a cooperative partnership. This is a good idea if you’re low on funds or need an extra boost to raise capital, or if you have someone in mind that can bring something special to the relationship.
This could be existing relationships with industry contacts, experience running a business, or even particular assets that you lack.
However, forming a co-operative does mean that you have another voice (or more) to contend with. All decisions that you make have to be agreed upon by the whole group, and similarly, all profits that are made are also shared.
Franchising is something that is typically associated with restaurants but can provide a good modal in certain use cases. Basically, franchising is a right to sell or trade a business’ goods and services, as long as you adhere to strict rules and guidelines.
For example, one of the biggest franchises in the UK is McDonald’s. You can buy a McDonald’s restaurant, which gives you access to sell McDonald’s foods and goods. But you must sell them according to their rules – and of course, pay them for the ingredients and supplies to do so.
You can’t make any changes to the menu, the uniform, or staff working conditions, despite ‘owning’ that McDonald’s.
You’re then responsible for the success of that particular chain and get access to those profits only – not the billions the brand makes annually.
Once an agreement has been made in principle, your offer and terms are given to your solicitor and/or account, who will conduct their own research to make sure that this agreement is the best for you and that you’re paying the right value for the purchase.
Once they’ve agreed, you’re free to make the purchase and the transfer process can begin.
Step 7: Sign on the dotted line
After both parties sign the Share Purchase Agreement (SPA) from your solicitors, a completion date is set.
On this date, the buyer (you) transfers payment, which is sent to the new owner. And boom, you officially own the business.
Everything will be signed over to you, and there will usually be a handover period where the new owner receives access to bank accounts, passwords, codes, marketing materials, and other essential information for running the business.
But that’s it. Congrats new business owner!
Investing in businesses without purchasing
If you want to invest, but aren’t ready to purchase, then you can explore other options such as buying shares in a limited company.
As a shareholder, you’ll get a piece of the company profits and will be allowed to vote in company decisions, giving you a say in the bigger picture moments to help drive the success of the company.
The number of votes and profits that you will earn depends on the number of shares that you own.
The more you own, the more of the company that is ‘yours’. If you’re not interested in running a company but are thinking about investing for financial gain, it could be a good idea to create a portfolio of non-majority shares in a limited company.
Like any financial decision, you need to speak to an accountant for the best advice according to your unique situation.
How to buy a business in the UK in 7 easy steps
Buying a business in the UK can be a rewarding venture, but it requires careful planning and attention to detail to get the best deal and opportunity for you.
With our 7 steps to buying a business, we’ll help transform you from a potential buyer to a business entrepreneur. The most important factor to take away from this guide is that you should never rush into a decision.
Always do your research and consult advice from your solicitor and accountant to make sure that this is the best investment for you.
For any other business advice, including tips and ideas on how to run your new business, we’re here for you at Business4 Beginners.
