Buying a business can be an exciting step for an entrepreneur or investor to make as you expand an existing business or, perhaps, enter a completely new market.
Understanding the steps you need to take when entering a new merger or acquisition can bring great peace of mind and help you spot hidden issues along the way.
So, let’s look at some of the important stages of your next business deal, put together by our experienced team of accountants.
Initial research and target identification
Careful consideration should be taken before making an offer on a business, as you need to know exactly what you are looking for.
Size, location, profitability and your own expertise or specialisms should be considered when you are identifying potential targets.
Once you have identified potential businesses you would like to acquire it is time to do some research about them to make sure they align with your business growth plans.
Although a more thorough due diligence process will take place once an offer is made, at this stage you can dig a little deeper buy reviewing their website, looking at customer reviews, press coverage and industry insights, as well as their Companies House records, if they operate as a limited company.
If you have any concerns about the business at this stage, it may be worth looking at alternatives that expose you and your existing business to less risk.
Preliminary discussions and indicative offer
Once you have found a business that aligns with your business growth plan, the next step is to open discussions with the seller.
After discussions have begun, it is common to submit an indicative offer based on the information you have received.
It is best practice to make an offer subject to due diligence, so that you are able to renegotiate or pull out of the deal if due diligence exposes areas of concern.
By now you should be considering how you are going to finance the acquisition based on the initial offer made.
Due diligence
A thorough examination of the business’s operations, finances and legal practices is essential once an offer has been made.
Beyond your initial research, you now need to understand exactly what you are buying to identify any potential risks to either business.
This stage is essential for identifying any red flags and confirming if the business is worth what you have offered. It is essential that the business fits within your growth plans.
As part of the financial due diligence process, you should review:
- Historical financial performance
- Revenue and working capital analysis
- Cash flow and cash conversion
- Net debt and debt-like items
- Capital expenditure
- Tax
- Management accounts and financial reporting
- Forecasts and projections
- Employees and pension obligations
- Related party transactions
The deal and legal agreements
Drafting the Sale and Purchase Agreement is imperative to secure warranties and indemnities. You should have a strong legal team that understands business acquisitions to protect your best interests.
Working closely with a tax advisor at this point can help you understand how the transaction is structured from a tax perspective.
The way the deal is structured can have significant tax implications for all parties and the advisor should assess Corporation Tax, Stamp Duty and any VAT considerations.
We have many local professional contacts within law firms, who we have years of experience working on a wide range of transactions.
Post-acquisition integration
Once you have crossed the T’s and dotted the I’s, you own a business that fits within your growth plan.
However, your work isn’t done yet, as you still need to pay close attention to integration and monitor performance closely in the early months to ensure the business is operating successfully within your growth plan.
How we can help
Buying a business can unlock fantastic opportunities for your existing organisation and personal wealth, but it isn’t without risk or stress.
There is so much to consider when buying a business, so why not get some help from the people who know best?
Our team are here to help you make decisions that have your tax and business plan in mind so you can buy a business as stress free as possible.
Get in touch, for expert advice on buying a business.
