Buying an established business rather than starting a new business can be a great option for many potential business owners. Established businesses come with an existing customer base and are already trading.
However, you may also inherit problems that the business has. You need to know exactly what you’re signing up for and be honest about your ability to run a business. You will need to investigate in detail the business you plan to buy, making sure it is feasible and has a well-developed market for its products or services.
1. Get professional advice
Getting sound professional advice is a vital part of the due diligence process. At a minimum, you will need the services of an accountant to investigate the finances and accounts, and a lawyer to investigate regulatory issues (such as regulation of undertakings), legal issues (such as employment contracts and the like), and check licences and registrations. You will also need a lawyer to review the purchase agreement.
2. …And get that advice straight away
Professional advice should be considered at the very start when deciding to buy a business. While such advice will in all likelihood cost money, expertise can mean the difference between your new venture succeeding and failing.
The last thing you want is to find — having signed on the dotted line — that your new company owes thousands of pounds worth of tax, that there is a dispute with your new employees, or that you don’t have the correct licences to operate the business.
3. Know what sort of advice you need
When buying a business, lawyers will offer guidance on reviewing the drafting and provide you with an understanding of the purchase contract. They should also advise on any licensing and/or regulatory issues, and on protecting the intellectual property of the business.
You should also make sure that your lawyer helps with identifying and ensuring disputes are resolved before you purchase, analysing employment contracts and any liability therein, and reviewing veracity of commercial contracts between business and suppliers and/or clients.
Taking on a business is a big undertaking. It may be tempting to avoid using professionals to assist, but they are skilled in such work and they know what to look for and what is of concern.
4. Never take anything for granted
Always negotiate with the owner “subject to contract”. Just as with buying a home, negotiating “subject to contract” is a way of keeping your options open should anything go wrong. Otherwise, you may find you have entered into a binding contract for the purchase. What’s more, always adopt a skeptical approach. Query and question everything about the business. Why, for example, is the business for sale at all?
5. Don’t be afraid to negotiate
Make sure you get an accountant to guide and advise you on how to value a business. The price may be far too high. Negotiation is everything and there is no right price for any business. It is up to you to use all available information to negotiate a price that is acceptable to you and hopefully as low as possible.
Carl Parslow is a Jersey qualified lawyer and the managing partner of Parslows Jersey. As Head of Jersey Business Legal Services, he and his team specialise in all aspects of Jersey business law, from buying and selling businesses, advising on commercial contracts, through to advising on employment law and competition law.