OUR GUIDE TO BUYING A SMALL BUSINESS
“The critical ingredient is
getting off your butt and
doing something. It’s as
simple as that. A lot of
people have ideas, but
there are few who decide
to do something about
them now. Not tomorrow.
Not next week. But today.
The true entrepreneur is a
doer, not a dreamer.”
A Truelegal Guide,
written by
Martin Truman,
specialist
business transfer
solicitor with over
20 years’
experience of
acting for
business buyers
For first-time business buyers
who want to
find the right small business,
avoid costly mistakes and
secure the best deal.
Find out:
Whether you have what it takes to become an
entrepreneur
How to find the right business
What to do when you find the right business
Whether you should buy assets or shares
If the business is really worth the asking price
How to seal the deal in the quickest possible time
And much, much more...
TRUELEGAL GUIDE TO BUYING A BUSINESS
Contents Page
Becoming a business owner: do you have the passion? 3
Which is best, buying an existing business or starting from scratch? 3
Don’t kid yourself - have you got what it takes to be an entrepreneur? 4
Do you know what business you want to buy? 5
Can you afford to buy a business? 8
How to find a business to buy 11
What to do when you find the right business 12
Due diligence: is the business really worth buying? 13
The legalities of buying a business: how to seal the deal 14
You’ve bought the business! What happens next? 17
Get in touch for professional help along the way 17
Becoming a business owner: do you have the passion?
If you feel no passion for your career, are frustrated with working
long hours for little reward or, perhaps, have a fantastic idea that
you think would set the world alight, the prospect of buying your
own business and being your own boss can seem an attractive
one. Whatever the catalyst for buying a business, once the seed
of an idea takes hold, it generally grows in a rampant fashion until
you simply can’t ignore it. I know from experience.
After qualifying as a lawyer in 1995 and following the traditional
path of working in big city law firms, I was tired of the life-sapping
14 hour a day culture and frustrated at the bureaucracy which interfered with providing clients with the level
of service that I felt they deserved. I felt I could do things better and so I finally took the plunge and Truelegal
was born in 2000.
Which is best: buying an existing business or starting from scratch?
You could, of course, do what I did and set up your own business from scratch, but the failure rate for start-
ups is high and that’s a scary prospect for many. Buying an existing business and making it your own, on the
other hand, can make the leap from employee to entrepreneur less daunting, particularly if there is already a
proven business model and a healthy balance sheet in place. Nevertheless, buying a business is rarely
straightforward: there are plenty of hurdles to trip up the ignorant or unwary.
I’ve had the pleasure of working with many entrepreneurs over
the years, with varying degrees of ambition, financial resource
and business acumen. No matter what their level of knowledge
and experience, and how well prepared they think they are,
there are always issues that threaten to scupper the deal at the
last moment, or which mean that the business they buy isn’t
actually the business they thought they were buying.
I’ve written this guide with first-time business buyers in mind. It
assumes no prior knowledge or experience of running a
business and is written in plain English – no fancy jargon or
legalese. Its objective is to give you the knowledge and
confidence you need to take that leap into a very different future of exciting possibilities.
If you have passion and knowledge, anything is possible.
Don’t kid yourself: do you have what it takes to be an entrepreneur?
Not everyone has the necessary drive, determination, skills and resources to run their own business. A
business failure may leave you in a significantly worse position than you are in now, both financially and
emotionally. So, before you take the plunge, and to be certain you have what it takes, you first need to ask
yourself some searching questions – and be prepared to give very honest answers.
How badly do you want it? If you think owning your own business will give you financial and time
freedom, think again. It may do – eventually – but you can be sure that, in the meantime, you will work
harder than you have ever worked before. Evenings, weekends and long holidays with the family? Forget it.
In the early months and years you will likely be pumping in more time and effort than you ever did as an
employee - and taking home very little to show for it.
How resilient are you? The downside of becoming your own boss is that the buck stops with you.
Problems and challenges are inevitable. Are you a glass half full person or a glass half empty? If you want to
own your own business you will need to be determined, resourceful and have an unswervingly positive
attitude.
Do you have relevant skills? When you become a business owner, irrespective of any specialist
skills that may be required, you will also become a marketer, a bookkeeper, an IT technician, a stock
controller, a customer services advisor, a contracts manager, a call centre operator and a general multi-
tasker. Okay, if you are buying a larger business, then you may be employing staff to do these things for you
– but then you will need a good grasp of HR too. Of course, you always have the option of seeking help from
professional advisors, but that costs money. So, if you don’t already possess any relevant skills or
experience – and you can’t find the time, money or inclination to learn or pay others to do so – you may want
to reconsider your plans. Above all, you need an ability to get
on well with people from all walks of life and excellent
communication skills.
Do you have the necessary resources?
One of the biggest causes of business failure that Truelegal
see is inadequate or inappropriate finance. Do you have
capital ready to invest; how much can you realistically commit
given your current circumstances? Will you require finance in
the form of a loan; will you be able to provide adequate
security, often a personal guarantee or rent deposit? You will need to make sure you have enough funds
available not only to purchase the business but also to ensure that the business has sufficient working
capital to meet its day-to-day commitments; with sufficient money to meet your domestic commitments. If you
are short of financial resources right at the beginning, things will only go from bad to worse.
Are you comfortable with risk?
All businesses involve a degree of risk, with some being more inherently
risky than others. How much risk are you willing to take?
Many external risks can impact on your business which you are powerless
to control. What if a competitor sets up business across the road from you?
What if an advance in technology renders your service obsolete or out of
touch? What if the economy takes a nosedive? Other risks, such as your
willingness to let others buy from you on credit, will be within your control.
However, the level to which you are prepared to tolerate these risks will
have a significant impact on the success of your business.
Do you know what business you want to buy?
This may seem like an odd question but the reality is that there are many different possible options. As well
as a general ambition for personal success, many entrepreneurs have more specific motivations for buying a
business. These can include a desire to access particular markets, customer databases or supplier
contracts, a need to access particular know-how or intellectual property rights (for example, branding or
software) or, perhaps, a calculated decision to buy market share from a competing business.
Your motives will drive what exactly it is that you want to buy and also dictate whether an asset purchase or
a sale purchase is the best way to achieve your goals.
Asset or share purchase – which is best?
If you buy a business from a sole trader or a partnership, there will be no shares to purchase, so you have
no choice buy some or all of the assets. However, if you buy a private limited company or a limited liability
partnership, you will need to understand the difference between an asset purchase and a purchase of shares
and what the respective implications are for you – something few first-time business buyers understand.
What are assets?
Assets fall into three categories: tangible, intangible and current. Tangible assets are physical objects owned
by a business, for example, buildings, fixtures and fittings, stock, vehicles and equipment. Intangible assets
also belong to the company and include intellectual property (such as ownership of a trademark, design,
software programme or invention) and goodwill. A current asset is cash and any other company asset that
will be turning to cash within one year from the date shown in the heading of the company's balance sheet.
This could include debts (money due from customers) and stock, as well as cash reserves.
Advantages of an asset only purchase
When you buy just the assets of a company, you do not buy ownership of that company but, rather, become
the owner of a new business to which ownership of the assets is transferred. As a result, you will not have
any liability for the debts of the business arising prior to your acquisition (these will remain the seller’s
liability). The seller, meanwhile, is left, in effect, with a shell; a company which is unable to trade and just
owns a balance sheet. The shareholders who own the company will then wind the company down and
distribute any profit remaining to the shareholders after tax and liabilities are paid off.
Disadvantages of an asset only purchase
The downside of an asset purchase for you is that you will require a legal transfer of ownership in respect of
every one of those business assets. In many cases, this will involve (sometimes protracted) negotiations with
an array of third parties, such as the landlord of a leased property, the owner of a software licence or the
supplier of a hire purchase agreement. Equally the customer contracts may not automatically transfer and
may require the consent of the customer. This is where the input of an specialist business solicitor can really
come into its own.
What are shares?
A share is a token of ownership in a company and gives the
shareholder a vote in how the company is run and, typically, a
right to share in the company’s profits. An individual shareholder
can have just one or many shares. So, when you buy all of the
shares in a company you buy ownership of that company. The
company itself is unchanged.
Advantages of a share purchase to a buyer
When you purchase the shares of a company you become the
new owner of that company and, as such, there is no
requirement to transfer any of the assets, which remain in the
ownership of the company: such as stock, intellectual property,
customer contracts and lease. It is often seen as “business as usual” to the outside world and this continuity
of business can be extremely valuable.
Disadvantages of a share purchase
The downside of a share purchase is that you also buy responsibility for the existing problems and historic
liabilities of the company, for example, outstanding tax bills or employee disputes. Because of the increased
risk involved in the purchase, it is critical to carry out a thorough investigation of the health of the company
before you buy and to secure appropriate warranties (binding guarantees) and indemnities (promises to pay
compensation against loss) from the seller. Again, the services of a specialist business solicitor are a critical
part of this process.
Employees
When I speak to first-time business buyers I often hear the misapprehension that buying assets means it is
easier not to inherit the existing employees.
Legislation known as “TUPE” means that any
employees in a business will automatically transfer
with the assets, which levels the playing field from a
share/asset perspective.
Can you choose whether to buy assets or shares?
Of course, whether or not it is possible for you to buy
what you want will very much depend on what your
seller is prepared to sell. For a deal to complete
requires compromise from both parties. However,
generally speaking, a seller will always prefer to sell
shares to benefit from the very favourable tax
treatment known as Entrepreneurs Relief (effectively a 10% tax rate). An asset sale for them will require a
greater degree of tax planning and may incur a double whammy of taxation (Capital Gains Tax and
Corporation Tax) which rarely makes financial sense; unless the price reflects this. Nevertheless, sellers
have different motives for concluding a deal, too, and you may find it’s you who is in the stronger bargaining
position.
Complexity often provides opportunity
The summary above only scratches the surface and shares versus assets is probably one of the most
misunderstood areas of buying small businesses.
My 20 years’ experience in buying and selling businesses for clients has taught me a few truths above all
others. Understanding where the true value of the business lies nearly always comes down to the getting to
the bottom of the seller’s motives for selling and applying some expert advice to ensuring the proper
structuring of an offer.
Making the right offer, expressed with the right conditions and with payment terms agreed on a non-standard
basis can often make thousands or tens of thousands of pounds of difference; and contribute to the ultimate
success of the business for you.
And please, don’t forget the impact of any associated property, more about this later in the guide.
Can you afford to buy a business?
Clearly, it’s not the place of
a solicitor to give detailed
financial advice. However,
for the sake of
completeness, and
because I see so many
deals fall flat on their face
due to poor financial
planning, this section
outlines some fundamental
financial considerations for
buying a business.
How much should you pay for a business?
So, you’ve decided you want to buy a hotel on the Cornish coast. But how much is it going to cost? Some
rudimentary research into businesses advertised for sale in the industry and location you’re interested in will
give you a ball park figure as to roughly how much you can expect to pay. But, clearly, there will always be
variations in terms of the size of a business, its profitability and the nature and complexity of its assets. All of
these will have an impact on its value. As, of course, will the personal circumstances and motivations of the
seller.
A question of value
There are many different methods touted for valuing a business but the reality is that valuation is more of an
art than a science. Once you’ve completed some initial market research (and assuming you haven’t been
dissuaded by the likely cost), you’d do well to talk to reputable Business Transfer Agents (BTAs) in the
locality or business sector you are searching.
Whilst BTAs predominantly act for those who are selling a business, a good BTA will understand the gains to
be made from engaging with those looking to buy a business, not least the opportunities for some potential
matchmaking. He or she may have information about a suitable business opportunity that has not yet been
marketed. And BTAs, more than anyone, will also have a far greater understanding of realistic market values
for businesses in different industries in their area that will go far beyond the standard profit to earnings ratio.
What level of investment can you afford?
The shape, size and make-up of your target business will necessarily be
compromised by the level of investment you can afford. Time for a reality
check. As soon as you’ve identified what type of business you’d like to buy, you
need to take stock of your personal circumstances and, if necessary, explore
options for borrowing. However, it’s not just the purchase price you need to
finance. It’s crucial both for the future success of your business and your
personal welfare that you also have sufficient reserves to fund both the day-to-
day running of the operation (working capital) and your domestic commitments.
Unexpected expenses and below expected performance are common themes in the early stages of running
a new business. If you don’t have any contingency to call upon, you could find your business quickly taking a
downward spiral. And if such circumstances are not stressful enough, chances are you’ll be left in a situation
where there is no cash left to draw down for your own living expenses either. Clearly this is not a good place
to be.
Typical sources of finance for buying a business
So, assuming you’re not sitting on a chunky inheritance left by Great Aunt Edith and that your savings are, at
best, average, it’s more than likely that you will require some form of additional finance for your business
dreams to get off the ground. The two main sources of finance are loans and equity.
Loans
There are many different types of loan – or debt finance – from
short-term overdrafts and credit cards to long-term business
loans, commercial mortgages, grants and vendor loans (where
the seller is persuaded to lend you the money you need by
deferring the purchase price). In all cases, the important point to
bear in mind is that banks and financiers will only offer their best
products to those who can demonstrate that they are a good
investment. In other words, and particularly if this is a new
business venture, your business plan will need to show that you
have conducted thorough market research and that you have a
sound understanding of the business being acquired, the level of
finance required to successfully run it and a set of realistic cash flow projections.
Remember that, as well as paying interest on loans, you will be required to provide some form of security. If
a property is being acquired then this is likely to take the form of a legal charge over the property., as well as
the business. Security may also be sought over other assets in the business. However, you may be required
to provide a personal guarantee for the debt. In such cases, forming a limited company is the only way you
can attempt to limit your personal liability for business debts, although lenders will still almost invariably insist
on personal guarantees from shareholders in new limited companies with no track record. A good business
solicitor will advise you of the best way to structure your business so as to minimise the personal risk to you.
Equity
Banks and other lenders are unlikely to agree to long-term loans without the provision of a minimum amount
of equity, or personal investment. For small and medium business enterprises (SMEs), such equity is likely to
come in the form of either personal savings or a cash investment in the business from a family member or
friend. Depending on the size of the business and its potential for growth, there may also be the possibility of
finding ‘angel funding’, investment provided by local or regional investors.
Whilst the stakes involved are clearly not the same as equity deals struck by the big players, plenty of SME
entrepreneurs live to regret their choice of equity partner. Angel funders, in particular, will invariably expect a
high return on their investment as well as a say in how the business is run via the appointment of a nominee
director to the board. In practice, this means that your profit and your control of the business can be
significantly compromised.
A word on franchises
If you have limited funds to invest and are reluctant to take on high levels of risk, you might consider the
option of buying a franchise. Whilst you won’t have total control of how your business is run, or the same
earnings potential as owning your own business, a franchise will give you a degree of autonomy, the
opportunity to grow your own business and the reassurance of working to a tried and tested business model
backed up by a comprehensive business support network.
Franchises range in price from a few thousand pounds to several hundred thousand pounds and can be
purchased in practically every industry and business sector. Nevertheless, you can’t escape risk entirely: not
all Franchise Agreements are drafted equally and money spent on asking a business solicitor to review the
terms and conditions of your Franchise Agreement will be money well spent.
How to find a business to buy
When you’ve given plenty of thought to what type of business you want to buy, and what you can realistically
afford, it’s time to start looking. There will generally be two guiding factors: geographical location and
whether you need a business with accommodation included or not.
If you’re a serious buyer, a Business Transfer Agent or Broker will be invaluable
In this day and age, the internet will, of course, play a part in
your search. The majority of sellers choose to use a Business
Transfer Agent and they each have their own website with
details of hundreds of businesses for sale in different
locations. But it’s also worth speaking to a few BTAs or
Brokers in person: if you are well prepared and can
demonstrate that you are a serious buyer who has
considered exactly what you’re looking for and already
sourced the necessary financial backing to move forward, you
will find that a good BTA or Broker will be invaluable in
helping you in your search. He or she will undoubtedly have
insider knowledge and may be able to bring to your attention
a perfect business opportunity which may not yet have come to market. Or, indeed, suggest possibilities that
you may have overlooked.
Over the years we have worked with almost 50 different business brokers. Some will have a very local
coverage, others will be sector specialists. Please get in touch if you’d like our opinion on who may be best
to speak to—we may also be able to make a personal introduction to make you stand out from the crowd.
We have prepared a separate guide on this topic. Email us for a copy or visit our website to download it.
What to do when you find the right business
You’ve found it! The perfect hotel perched on a clifftop in Cornwall with sea views to die for. Or pub in the
Cotswolds. But is it really worth the asking price?
Assuming you’re confident that the asking price is within your budget (if not, all bets may be off unless the
Business Transfer Agent is confident of engineering a deal that is acceptable to both parties), your next step
will be to investigate the business in question to satisfy yourself that it really is worth the asking price.
Clearly, business sellers do not want to waste their time with, or disclose sensitive information to, spurious
buyers or, even worse, competitors who may just be snooping. For that reason, it’s more than likely that the
initial information you receive about a business that interests you will simply be a basic summary: a high
level description of the nature of the business sometimes including a figure for turnover and profit.
The importance of a preliminary visit
Armed with the business particulars of one or more businesses that you are interested in, the next step is to
visit in person. At this stage, provided it is the type of business that allows public access, it’s better not to
make an appointment with the seller but rather to see the businesses in the normal course of operation, as a
‘fly on the wall’. Provided you have persuaded the BTA that you are a genuine prospective purchaser, they
will give you the business address.
The purpose of this first visit will be to satisfy yourself as to the location of the business and to make a
personal judgement on how well you think it is run. For example, in your target hotel in Cornwall, you will be
scrutinising the customer service, how busy it is and what the ambience is, what the state and cleanliness of
the internal décor is, how good the menu and the quality of the food is, how much parking there is for
customers etc. Even better, and finances allowing, stay for a night or two yourself.
You can save a lot of wasted time with these initial visits. If the location really isn’t all it’s cracked up to be or
the business has a bad vibe or seems poorly operated, you may decide to cross it off your list. Or, of course,
if you have the necessary ambition and resource, you may see it as an opportunity to turn the business
around into a more profitable model – provided, of course, you can get it for the right price.
Meeting the business seller for the first time
Assuming your initial unannounced visit was a positive
one, the next stage will be for you to make an
appointment through the BTA to visit the seller in
person. This will give you the opportunity to ask
questions that have arisen both from the particulars and
your site visit (if a public site). Because of the sensitive
nature of the information to be exchanged, you will be
required to sign a Confidentiality Agreement
beforehand in which you promise not to disclose or use
the confidential information for any purpose other than
assessing whether to purchase. In addition, it may be that the seller has not yet told staff that s/he intends to
sell the business, so it is always good practice to be discreet while at the premises.
Questions to ask will include a bit more detail about the trading figures. Unless it is a new business, you
would expect to be able to have access to the last 3 years’ trading figures showing turnover, gross profit and
net profit. You can find out who prepared the accounts and satisfy yourself as to book-keeping procedures.
Is turnover increasing year on year, or decreasing and, if so, why?
You may also want to ask questions about any perceived risks, for
example, whether the seller has any knowledge of planning
applications in the locality which may affect the business and whether
sales are made across a broad customer base or reliant on a few key
customers. Does the seller have good relationships with important
suppliers who s/he can introduce you to?
You can also ask how long the business has been on the market and
whether or not there has been any other interest. A business that has
been on the market for a long time or appears to have had little
interest is likely to be overpriced. Listen out for any inconsistencies in answers to your questions and make
notes of anything that will require further investigation.
Following the visit, you will most certainly have some questions that, in the first instance, you will want to
discuss with the BTA. Assuming there is nothing of major concern and you are still interested in proceeding,
the next phase in the process will be to carry out a more detailed investigation of the business, a process
known as ‘due diligence’.
Due diligence: is the business really worth buying
The due diligence process, whereby a prospective buyer investigates a business to verify the information on
which its value is based, can vary according both to the industry involved and the complexity of the deal,
including whether it is an asset only sale of a sale of shares. But, whatever the format, the process can be
time-consuming and expensive not least because, by this point, it is normal to have engaged professional
advisors to advise on your behalf.
The importance of seeking professional advice
At the very least, you will need to instruct an accountant to verify the accuracy of the accounts and a solicitor
to check the seller’s business legal documents, such as contracts of employment (which may legally pass to
you under the Transfer of Undertakings (Protection for Employment) Regulations, commonly known as
“TUPE”), shareholder agreements, lease and licence agreements and key contracts with suppliers and
customers. And, here, it pays to be selective. If you don’t already have a suitable accountant or business
solicitor, shop around.
Buying a business is an expensive process. What you don’t need are professional advisors who are
inexperienced or generally unavailable when you need them most. Unnecessary delay will cost you money
you may not have. Take care to choose someone who specialises in business acquisitions, who can give
you certainty about fees and who genuinely cares about you and your business objectives. A good solicitor
At Truelegal we have seen many examples of counterparties using inexperienced adviser which has slowed
completion of the transaction down or jeopardised the deal itself.
If the seller has nothing to hide, it should also be possible for you to speak to the existing business
accountants. By doing so, not only will you get a better impression of their professionalism but also find out
more about the business and to what extent the current owner is personally involved in drawing up the
accounts – which may make them less reliable.
Of course, along with assisting with the due diligence, a solicitor is also going to be essential to draw up the
legal documents that set out the structure of the deal.
The legalities of buying a business: how to seal the deal
Deals can take many different courses. But, if there is one thing that is consistent about all deals, it is that
the price is negotiable. Sellers will never intentionally undervalue their business and buyers will never want
to pay the full asking price. Whether or not an agreement can be reached which keep both sides happy is
very much down to the experience and expertise of your solicitor and the business transfer agent in leading
negotiations. It is essential that you have a price ceiling that you never exceed and are prepared to walk
away, no matter how keen you are, if the seller refuses to fall below it.
Which type of deal is best for you?
Assuming a price is agreed, the real variables in terms of
complexity of the deal are the way in which the consideration is
paid and the way in which the risks to the buyer are managed. In an
ideal world, a seller would prefer a full cash payment and
immediate exit from the business. From the buyer’s point of view,
however, it makes sense to have some of the consideration linked
to future performance of the business. What usually happens is
some kind of middle ground.
If you’ve struggled to secure the necessary finance to make the purchase, you may even find that the seller
will agree to lend you some or all of the money needed to make the purchase and then become a creditor to
the business. Or if the seller’s know-how and experience is essential at first to the continuing success of the
business, you may agree that the seller stays on as a consultant or employee.
Whatever the shape of the deal, there has to be legal documentation that sets out the parties’ rights and
obligations in writing. And it goes without saying that you need a solicitor who knows what they’re doing to
draw these up for you.
Letter of Intent/Heads of Terms
The initial offer and conditions made by the buyer are summarised in these documents, which are relatively
brief. The main points covered include:
The subject of the sale – the shares or the business assets
The consideration, or price, and how it is to be paid
Payment dates and security for any deferred payments
Any agreed handover period
How the purchase is being financed
Property-related matters such as outline terms for a new lease
Critical points resulting from the due diligence exercise upon which the buyer is reliant
The Heads of Terms are signed by both parties but are not usually legally binding. They do, however,
provide a structure for the more detailed Sale and Purchase Agreement.
Sale and Purchase Agreement
This is the most important and complex document in the transaction and is typically drawn up by the buyer’s
solicitor. As well as validating that each party has the right to enter into the agreement, it will lay out in detail
what is being bought, how the consideration will be paid and what conditions are attached to the purchase.
From the buyer’s point of view, it is essential that the Sale and Purchase Agreement includes warranties, or
promises, from the seller that certain facts upon which the buyer has relied on in making the decision to buy
are true. A buyer will also be looking for indemnities, or agreements to pay compensation, to provide security
against certain perceived or known risks. There is usually much negotiation around these terms and
conditions and a commercial standpoint, from both buyer and professional advisers, is essential.
The Sale and Purchase Agreement will also include additional schedules such as a detailed list of all assets
being bought or transferred and any relevant documents from the due diligence process.
Signing the Sale and Purchase Agreement is an important, and exciting, milestone. As soon as the
necessary consideration has transferred from one back account to the other, the deal is done. The business
is yours. The adventure begins.
However, there is one more agreement that is equally as important: unless you are planning to own 100% of
the shares in your new venture, you will require a Shareholders’ Agreement (or Partnership Agreement).
Shareholders’ Agreement
The Shareholders’ or Partnership Agreement sets out the rights and obligations of those who have a part
ownership in the business. Having such an agreement in place can save much stress and money if, at a later
point, there is a dispute between shareholders or partners as to the way the business is run or, for example,
a shareholder dies, retires or is declared bankrupt. Amongst other things, the Shareholder Agreement
should also include an agreed valuation method in the event that the business is sold.
Employee Contract and Director’s Service Contract?
In addition to being a shareholder in your new business you are likely to also be a director and an employee.
In both of those positions you will want to protect your rights job description, hours worked, salary and any
bonus details, holiday entitlement, allowed expenses and pension arrangements.
Property
I’ve left this topic to last as it is often the “elephant in the room” that a buyer fails to focus on, or at least not
early enough. The majority of small businesses being purchased will be operating rom a leasehold property.
The buyer needs to consider a number of points and this guide cannot explore these in any detail.
Is the sale and asset or share sale? If shares the lease remains unchanged, although personal
guarantees given by the seller may need to be released and replaced.
Have you seen the current lease?
How long is left?
Are there any breaks?
What is the rent review provision?
Is it a “protected lease” with a right to renew at the end?
Would it be better to ask for a new lease rather than a transfer of existing
What are the stamp duty land tax obligations?
What are the repairing obligations and how can this be factored into the price?
Will you have to pay the landlord’s costs in dealing with the transfer or a new lease?
This area is in my opinion the one which has most potential to affect the success of your business purchase.
Please do not proceed with a business purchase where there is property without taking professional advice.
You have been warned!
Completion
Typically small business transactions now take place virtually
with scanned documents being shared between buyer’s and
seller’s solicitors, so the excitement of signing on the dotted
line can be somewhat diluted! But completion day and the
days preceding and immediately following are key. We have a
number of tips for buyers where 100s if not 1,000s of pounds
can be saved. The subject of a different guide…
You’ve bought the business – what happens next?
Legal documentation signed, money transferred … congratulations, you’ve bought your first business. Now
begins the real hard work of making it a success. But, just before you get cracking, there are a few
formalities to be undertaken that should not be overlooked:
You may need to pay Stamp Duty on the shares or Stamp Duty Land Tax on the lease
Completion or Apportionment accounts make need to be prepared and agreed
Any assignments or transfers of intellectual property rights may need to be registered, as will any
charges
Statutory forms may need to be filed at Companies House
Property lease ownership may need to be registered at the Land Registry
A new VAT registration application will have to be made
Your solicitor should also give electronic copies of all final documents and due diligence materials,
sometimes referred to as a “Transaction Bible’” – which contains various important documentation from the
transaction.
Get in touch for professional help along the way
At Truelegal we have chosen to focus our advice solely on helping business buyers and sellers. Our team of
solicitor experts and the support staff are all experienced in the business buying process and have seen
many transactions of the type that you are contemplating.
If tapped into at an early stage — often earlier than a prospective buyer
thinks — we can apply this experience to striking a better deal for you,
sometimes saving several thousand pounds for you. Early advice and
investigation may also prompt you not to make or pursue an offer if the
deal does not seem right.
By specialising in the business buying field we also come across other
business purchase experts such as accountants, brokers and transfer
agents, and we would be pleased to connect you to the right one.
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Please contact me or one of my team to get a flavour of what we can
do to assist you with your own plans. Rather than the generic
guidance provided in this guide, we can focus in on your specific needs
and business opportunity.
Don’t worry, the “billing clock” won’t be ticking. We provide fixed fee
quotes once we know more about your own requirements.
Happy business opportunity hunting!
