How to Buy a Business

Introduction

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Buying an existing business can be one of the fastest ways to become a business owner, but it is also one of the easiest ways to make an expensive mistake if it is rushed or poorly structured. I have advised clients on acquisitions ranging from small lifestyle businesses through to multi-site trading companies, and the same pattern appears time and again. The buyers who succeed are not the ones who move the fastest, they are the ones who understand what they are buying, how it makes money, and what risks they are taking on.

Buying a business is not just a commercial decision, it is a legal, financial, and emotional one. You are not only buying assets or shares, you are often buying history, staff, systems, customers, and sometimes problems that are not immediately visible. At the same time, when it is done properly, acquiring a business can be far less risky than starting from scratch, because there is already trading history, cash flow, and a customer base.

In this guide, I am going to walk through the process of buying a business in the UK from start to finish. I will explain the different ways a purchase can be structured, how to value a business realistically, what due diligence actually involves, how deals are funded, and where I see buyers go wrong most often. This is written from a practical perspective, based on real transactions rather than theory.

Why people choose to buy a business rather than start one

Many people assume starting a business is cheaper and simpler than buying one. In practice, the opposite is often true.

Buying a business can give you:

• Immediate turnover and cash flow
• An established customer base
• Proven products or services
• Existing staff and systems
• Trading history that lenders can assess

Starting from scratch often involves months or years of uncertainty, losses, and trial and error. Buying a business does not remove risk, but it can significantly reduce the early stage unknowns.

That said, you are paying for that head start, and it is essential to understand exactly what you are paying for.

Being clear on what you want to buy

Before you look at listings or speak to brokers, I always encourage buyers to be clear on their objectives.

Ask yourself:

• Do I want an owner managed business or one with staff
• Am I buying for income, growth, or long term resale
• How hands on do I want to be day to day
• What industries do I understand or want to learn
• What level of risk am I comfortable with

Buying a business that does not suit your lifestyle or skills is one of the fastest ways to end up regretting the decision, even if the numbers look good.

Finding a business to buy

There are several common routes to finding a business for sale.

These include:

• Business brokers and marketplaces
• Accountants and professional advisers
• Industry contacts and word of mouth
• Direct approaches to owners

Brokers can be useful, particularly for first time buyers, but it is important to remember that they usually act for the seller, not the buyer. Their role is to achieve a sale, not to protect your interests.

Some of the best deals I see never reach the open market and come through professional networks or direct conversations with owners planning an exit.

Understanding why the business is for sale

One of the first questions I always ask is why the owner is selling.

There are genuine reasons, such as retirement, health, or a change in priorities. There are also warning signs, such as declining profits, loss of key customers, or increasing competition.

A seller does not have to tell you everything upfront, which is why later due diligence is so important, but early conversations can reveal a lot if you listen carefully.

Asset purchase versus share purchase

This is one of the most important decisions in any business acquisition.

There are two main ways to buy a business:

• Buying the assets and trade
• Buying the shares in the company

An asset purchase means you are buying selected assets such as equipment, stock, goodwill, and customer lists. You usually leave behind historic liabilities.

A share purchase means you are buying the company itself, including everything it owns and owes.

From a buyer’s perspective, asset purchases are often safer because you can avoid unknown historic liabilities. From a seller’s perspective, share sales are often more tax efficient.

This is an area where professional advice is essential, as the tax and legal implications can be significant.

Valuing a business realistically

Valuation is where many deals fall apart or go wrong.

Small businesses are rarely valued using complex models. Instead, they are usually valued using a multiple of maintainable profit.

Common approaches include:

• A multiple of adjusted net profit
• A multiple of EBITDA
• Asset based valuation
• A combination of the above

The key phrase here is maintainable profit. I regularly see businesses advertised based on peak performance or best ever years, rather than sustainable results.

When reviewing figures, I always look for:

• Consistent profits over several years
• One off costs that can genuinely be removed
• Owner salaries that reflect market rates
• Personal expenses run through the business

Overpaying is one of the biggest risks in buying a business, and it often happens because buyers fall in love with the idea rather than the numbers.

Heads of terms and making an offer

Once you are comfortable with the headline numbers, the next step is usually to make an offer and agree heads of terms.

Heads of terms are not usually legally binding, but they set out the commercial framework of the deal.

They typically cover:

• Purchase price
• What is included in the sale
• How the price will be paid
• Timetable for completion
• Any conditions

Getting this stage right saves time and cost later. Changing fundamental terms late in the process often damages trust and increases the risk of the deal collapsing.

Due diligence explained properly

Due diligence is often misunderstood. It is not about confirming that the numbers add up, it is about understanding risk.

Financial due diligence looks at:

• Historic accounts and tax returns
• Management accounts
• Cash flow patterns
• Customer concentration
• Margins and pricing

Legal due diligence looks at:

• Contracts with customers and suppliers
• Employment agreements
• Leases and property issues
• Intellectual property
• Ongoing disputes

Operational due diligence looks at how the business actually runs day to day.

In my experience, due diligence is where most buyers discover either deal breakers or negotiation points. Skipping or rushing this stage is one of the biggest mistakes you can make.

Funding the purchase

How a business is funded has a huge impact on risk and stress levels after completion.

Common funding sources include:

• Personal savings
• Bank loans
• Seller finance
• Investors
• Asset finance

Seller finance, where part of the price is paid over time, can be a useful tool. It aligns the seller with the ongoing success of the business and reduces upfront risk.

However, funding must be realistic. Overstretching yourself financially leaves no margin for error if performance dips after acquisition.

Tax considerations when buying a business

Tax should never drive the deal, but it must be understood.

Key areas include:

• Stamp duty on share purchases
• VAT on asset purchases
• Capital allowances on equipment
• Goodwill treatment
• Losses and reliefs

I regularly see buyers focus on the purchase price and ignore the tax cost of the structure, only to be surprised later.

Employees and TUPE

If the business has staff, employment law becomes a major consideration.

In many asset purchases, TUPE rules apply. This means employees transfer to you on their existing terms and conditions.

This includes:

• Pay
• Holiday entitlement
• Length of service
• Employment rights

You cannot simply restructure staff immediately after purchase without risk. Understanding your obligations upfront is essential.

Handover and transition periods

A successful acquisition does not end on completion day.

Most deals include a handover period where the seller stays involved for a defined time.

This can help with:

• Customer introductions
• Supplier relationships
• Knowledge transfer
• Staff reassurance

I often recommend structured handovers rather than open ended arrangements, with clear expectations on both sides.

Common mistakes I see buyers make

Based on my experience, the most common errors include:

• Overpaying based on optimism
• Relying on headline profits
• Skipping proper due diligence
• Ignoring working capital needs
• Underestimating time commitment

Buying a business is not passive income. Even well run businesses require involvement, particularly in the first year.

Managing the first year after purchase

The first year is critical.

Cash flow often tightens as systems change, staff adjust, and relationships settle. I always advise buyers to be conservative in their expectations and keep cash reserves.

Early priorities should include:

• Understanding cash flow cycles
• Building relationships with key customers
• Retaining staff
• Reviewing pricing and costs carefully

Trying to change everything at once is rarely successful.

When professional advice is essential

Buying a business is not the time to cut corners on advice.

You should always have:

• A solicitor experienced in business sales
• An accountant who understands acquisitions
• A clear understanding of your funding obligations

The cost of advice is small compared to the cost of fixing a bad deal.

Final thoughts

Buying a business can be one of the most rewarding decisions you make, but only if it is approached with discipline, patience, and realism.

In my professional opinion, the best buyers are not those who find the perfect business, but those who understand the risks, structure the deal sensibly, and plan for life after completion.

If you are considering buying a business, take your time, ask difficult questions, and get the right advice early. A good acquisition sets you up for years of opportunity. A rushed one can do the opposite.

You may also find our guidance on how to value a business and what is a management buyout helpful when exploring related limited company questions. For a broader overview of running and managing a company, you can visit our limited company hub.