The Stages of Buying a Business

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Buying a business is an exciting time for any entrepreneur.  However, it can also be a significant risk as more often than not you put either your money, or other personal assets, on the line and whilst with great risk can come great reward, this isn’t always the case. Once you have your team together, a target in mind and know the structure of the transaction, it’s good to understand the stages of buying a business.  

Buying a business isn’t the same as your average property conveyance, although the process may appear similar as it involves due diligence and enquiries, a contract for sale, exchange and completion.

Heads of Terms

One of the first documents you will need to agree is your Heads of Terms. These set out the headline terms for the deal and should accurately represent the parties’ agreement and on what basis they are willing to proceed. Whilst on the whole these are not legally binding, there are some provisions which will be including confidentiality and exclusivity. Therefore, it is important to ensure that these are fairly drafted and that you are fully appraised of what you are committing to before proceeding.

Due Diligence and Enquiries

Once you have Heads of Terms signed, you will need to undertake legal due diligence enquiries. This is a series of questions about the business you are buying, its assets and historic trading position. There are usually 4 limbs to these enquiries 1) Commercial (so that you have a full understanding from an operational perspective how to run the business once you take control) 2) Accounts (so that you are fully appraised on the basis upon which the company accounts for its income and to ensure that the expected income from your investment aligns with the accounting principles adopted by the Company) 3) Tax (so that any tax risks, anomalies or filing issues with HMRC are picked up and can be addressed as a part of the transaction) 4) legal – these are especially important as they address how the business has been conducted to date with a view to flagging any risks and liabilities associated with the business you are buying or structure of the deal.

Legal Documents

Once you have a comprehensive understanding of the business the paperwork to govern your transaction can be prepared. This will consist of a series of legal documents from your sales contract (which may take the form of a Share Purchase Agreement or Business Sale Agreement depending on your structure) through to a Disclosure Letter and ancillary documents required to effect your transaction itself. These need to be carefully drafted and negotiated to ensure that they comprehensively reflect your deal and minimise the risk to you.

Exchange and Completion

Once the legal documents are in agreed form, the final stage in your transaction is exchange and completion. Exchange and Completion is often simultaneous in these deals, so the point where you are legally bound is also the point where you get the keys to the business. This does mean that it is quite common to be negotiating to the wire – but an experienced team behind you will not only have the skill, but the stamina, to handle this!

Post-Completion

What happens after completion is just as important as the preceding stages to make sure that all necessary formalities are attended to. This includes payment of stamp duty where due, filings at companies house and updating Statutory Books where necessary. An experienced legal team will be able to attend to this and support you where necessary with any queries that you have on what is needed to finalise your deal.

For advice in relation to buying a business, contact the Corporate Team on 01604 828282 / 01908 660966 or email Coporate@franklins-sols.co.uk.