Management and leadership

The best time to acquire a business

Tom Haywood | 30 Aug 2019

The best time to acquire a business

Tom Haywood | 30 Aug 2019

In this article:

Buying another business could be the key to increasing your success, but follow these key steps before taking the plunge

Acquiring a business is, after marriage and buying a house, often the biggest commitment of your life.  Before signing on the dotted line, you must make sure that you are adequately legally protected, but the steps to making sure you’re ready to take the plunge are as simple as signing the final agreement.

The Heads of Terms of the transaction are agreed

Before doing anything else, you and the seller will want to agree the fundamental principles behind the deal – the price, the timescales, and any pre-conditions you require. You must take legal and accountancy advice on this to ensure that the deal is right.  

You have spoken with your accountant

Lawyers will advise you about the legal consequences of your transaction. You and they will need to work closely with your accountant and other tax advisors to ensure that the transaction is done in as tax efficient a way as possible. Otherwise, what seems to be a good deal could prove to be very expensive after HMRC have taken their cut! You should speak with your tax advisor as early in the process as possible to avoid incurring unnecessary costs.

You have carried out due diligence

It is important that you know everything you need to know about the business before taking it on. Lawyers will prepare a due diligence questionnaire and require the seller to answer various questions about the business. The questions should be tailored for the business you are acquiring but will usually cover matters such as its assets, its contracts, its employees and its property, amongst other things.   At the same time, your tax advisers will be raising similar enquiries dealing with the tax and accountancy aspects of the business. The answers to these queries could affect how much you are prepared to pay for the business, and any corrective action that you require the seller to carry out.

Your funding is in place

Funders can take up to three months and sometimes even longer to be able to lend the money. They may have particular requirements, such as taking security, such as a charge over your house or a personal guarantee from you. It is best to arrange funding as early in the process as possible to avoid delays, and to take advice on the proposed funding arrangements.

The documentation is finalised

Acquiring a business can be complex and time-consuming. Buyers are often surprised at the paperwork required, all of which require careful consideration. Although a deal might appear to be straightforward, the parties often need to agree other “ancillary” documentation, such as consultancy agreements, settlement agreements and loan notes. It is important that these issues are agreed before the deal is signed.

Tom Haywood is a corporate, commercial and insolvency solicitor at Taylor and Emmet. For more legal advice, and to claim free legal guidance with Taylor and Emmet click here.

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