Commercial Finance and Insurance

Buying and selling a business


Buying a business can be a torturous process and, if you’re not careful, one which can lead to false starts, dead ends and a lot of expense.  You have to decide what you want to buy, find something, negotiate the best possible deal with the vendors and raise the money to finance the venture.  Although many purchases go smoothly, many don’t and an all-too-common reason is that prospective buyers either don’t plan accordingly or ignore warning signs and red flags and press on regardless.

When you sell your business, you face the process from the other side of the fence and, if you want to get the best possible deal, the process can be just as fraught.  Owners may have spent years building their business into a profitable concern, often investing blood, sweat and tears, a huge amount of money and making many sacrifices along the way.  Most business owners sell their business for personal reasons with retirement, ill-health, moving or just falling out of love with what can be a constant struggle being the most common reasons.  Whatever the reason for selling, owners still need to get the best possible deal, partly to make up for their efforts over the years and partly to finance a new life or venture.

Buying or selling a business is the same as buying or selling anything ‘high value’, like a car, a house or a work of art – apart from making sure you’re getting the best deal, there’s some technicalities and legal steps you need to be aware of.

Many disappointments in life could be avoided if we followed the maxim “Failing to plan means planning to fail” – so here’s a list of the ten most usual steps buyers and sellers need to think about.

  1. What do you want – what are your objectives?

    Buying.  You need to have a clear idea of the type of business you want which will probably be influenced by your having a particular skill.  You need to build on this idea with some pragmatic thinking. Where do you want your business to be located? How big should it be? What ‘features’ are critical and what are desirable?  What is its long-term prospects? What will you have to do to make it a success? How much can you afford to spend? How can you raise the money? What security could you provide for a loan?  The answers to these, and many other questions, will condense into a very specific plan.

    Selling.  If you’re selling your business it’s probable that you have a date in mind, perhaps, for example, because you want to retire when you reach 60 – but don’t be tempted to leave everything to the last minute. Knowing that you are definitely going to sell at a specific time in the future means you’ve got time to decide how you’re going to do it and what it will entail.  You should try to work out how much you need from selling the business, perhaps to finance your retirement, and then have a valuation and a commercial audit carried out.  Depending on the result of the valuation you may need to try to find a way of increasing its value – businesses are at their most attractive when they’re growing rather than stagnating.

  2. Look around

    Buying. Once you’ve decided what you want, it’s time to start looking around.  Many owners will advertise their business is for sale, doing so puts it into the public domain and means that, if it’s good, you may have to compete for it.  But many don’t advertise, preferring to bow out quietly, letting it be known that it’s up for sale on a word-of-mouth basis within their location or industry.  If you find something you really like, then there’s no harm in asking an unexpected offer can sometimes precipitate a decision.

    Selling.  If you’re happy with how your business is running, and confident that you’ve done everything you can do to maximise its value and attractiveness, it’s time to start marketing it.  How you do this will depend on the type of business you have – but you should certainly make it known both locally and within your industry that you ‘may be interested in selling’ as many businesses are sold before an owner resorts to advertising.

  3. Research

    Buying. It’s definitely worth doing some research into the business you’re interested in.  How does it perform?  Can you pose as a customer to get an insight? How is it viewed in the market?  Who are its competitors?  Are they better?  Are they for sale?  Be critical about what you find out and try to learn from what you find.  If it’s not doing well, why not? What would you have to do to turn it around?  What would that cost?  Is it worth it?

    Selling. Be on your toes because, once it’s known your business is for sale, it’ll be in the spotlight – prospective buyers will be looking at it.  It’s also a good idea to make sure that you can demonstrate that you have run your business properly and that you thoroughly understand both it and the market it operates in. The confidence you display will give buyers confidence in both you and your business and help maintain your asking price.

  4. Make an approach

    Buying.  By now, you should have a clear idea about how well the business operates and its environment, so it’s at this point that you should make a formal approach, one that’ll pave the way to negotiating a deal.  Inevitably, the first thing that’s going to be discussed is how much you’re prepared to pay but, of course, you can’t do that without a (preliminary) valuation.

    Selling.  Ideally, you should be ahead of the game by having your business professionally valued before a potential buyer makes you an offer.  It’s quite possible you’ll receive tentative offers and you need to be in a position to know who’s serious and who’s making a speculative bid so that you can immediately say no to time wasters.

  5. The preliminary valuation

    Buying.  How this is carried out depends on the type of business being valued. Although tangible assets such as buildings, machinery and stock often form a large part of the valuation and are relatively easy to value, less tangible things such as turnover, profitability, contracts, customer goodwill and growth prospects all play important roles.  It’s probable that a specialist accountant, someone who understands the market in which the business operates, will be needed to carry out the valuation and a commercial audit.  If the result is positive and you want to proceed, now is the time to make a formal offer but it needs to be ‘subject to due diligence’.

    Selling.  You should already have had your business valued and, if it’s been done professionally, you’ll know exactly where you stand when you receive an offer.  You should also know your business’s ‘strengths and weaknesses’ as these will play a major part in negotiating a deal with a buyer who will, of course, want to pay the least they possibly can.

  6. Heads of agreement

    Buying and selling. Providing the offer the buyer makes is realistic, then they will want to carry out a more thorough valuation and examination.  The heads of agreement document shows ‘good intent’ by summarizing the principal elements of what both parties want to achieve into a single, non-legally binding document.  Key within the document is a timetable setting out the various actions each party has to complete, for example, how and who is to carry out due diligence and when it’ll start and finish, along with any milestones and deadlines that need to be achieved.

  7. Due diligence

    Buying and selling.  By the time you’ve reached heads of agreement, both parties should have a good understanding of the business and the rest of the purchase process.  Although the preliminary valuation will have covered many aspects of what due diligence does, it was done informally and often relied on good will.  ‘DD’, as it’s often known, is a formal, in-depth review of every aspect of the business and is usually carried out by professionals and experts.  The results of due diligence will provide a definitive overview of the business from which an equitable deal can be struck – or it may throw up something that causes the buyer to pull out.

  8. Sale and Purchase Agreement

    Buying and selling.  Once due diligence is complete and a final agreement has been negotiated between the buyer and the owner, a Sale and Purchase Agreement can be drawn up which, once signed, becomes legally binding.

  9. Finance

    Buying.  Whilst much of this has been going on, you need to have found and be talking to someone who is going to finance the deal.  Although you started out with an idea of how much you wanted to spend, quite often this changes as the process moves forward,  for example, the business you’ve approached turns out to be worth more than you first thought or you realize that, although the business is what you want, you’re going to have to invest in some aspect of it once you’ve bought it.  Having to review your financial backing is common and, depending on the level of risk, providing it’s a good deal and you can offer further security, most financial backers will work with you.


  10. Completion

    Buying.  With the contract signed and payment made, the business becomes yours.



How can One Financial Solutions help you?

One Financial Solutions is here to help you.  We’ll talk to you about what you need and then introduce you to a specialist commercial finance broker who will work with you to secure a financial solution.

The commercial finance brokers we work with are acknowledged experts within the industry and have enviable relationships with a wide range of financial institutions throughout the whole of the market.  They offer a complete service and can provide practical advice on all aspects of commercial finance.  They can secure working capital, venture funding, development finance, bridging loans and asset-based finance schemes; help with business purchases and sales, including management buy-outs and buy-ins, and advise and assist with all aspects of share capital, proprietor loans, vendor deferment and mezzanine finance.  They can also provide a lead role in liaising with all parties in these transactions including the financial institutions involved, accountants, specialized valuers and lawyers, and can write business plans, balance sheets, profit and loss statements and cash flow forecasts to support the proposal.

So, if you’re looking for help securing any type of commercial finance, please call us on 020 3714 9565, or ask us to call you by sending an email to