Where and How to Buy a Business in the UK: Your Guide to a Successful Acquisition

Growing a business from scratch involves a huge amount of planning, graft, investment and, of course, a little bit of luck. So, what about buying an existing business? You still need significant funds, not only for the purchase but to sustain or build on the work done by the current owners, but it can be a way to bypass the initial groundwork or an exciting addition to your business portfolio.

We discuss where and how to buy a business in the UK and outline some best practices and finance options for making your acquisition a success.  

Define what kind of business you want to buy and why

While there are numerous benefits to buying a business, including gaining a loyal customer base and leveraging existing talent, assets and competitive advantage, there are potential drawbacks. You can inherit historic issues, unexpected problems that require investment and a workforce that’s resistant to change. 

So, you need to do extensive research and financial planning before diving into the market, weighing up the pros and cons of buying a business vs. starting a business from scratch.

Here are some key things to scope out before you start your search:

• Consider the size, sector and location of your target business – identify any barriers to entry, regulatory requirements and other economic/geographic risks.
• Assess and calculate long-term growth potential – study sector performance and trade reports, and look for businesses with scalable models.
• Decide whether you’ll take an active or passive role in running the business, and what knowledge/experience gaps you need to fill.
• Assess your personal strengths, industry experience and transferable skills to judge what sectors and prospective businesses might be a good fit.
• Define your budget – set an ideal budget target and top limit to avoid overextending.
• Break your budget down into what you need for the purchase and other key financing areas, such as legal fees, change management, integration costs, promotional activities and working capital for business operations.  
• Work out how much capital you have to invest and what additional funding you need – consider how to raise money to buy a business and potential lending options. 
• Determine your long-term goals for the business (whether you’re invested for the long run or building to sell) and define your risk appetite.

Where to find small businesses for sale in the UK

Once you’ve done your research, you need to know where to look. Here are some common routes to finding suitable small businesses for sale:

Business brokers and online marketplaces

Intermediaries and platforms like Daltons, BusinessesForSale.com and RightBiz list businesses for sale, which you can filter by location, price, sector and other categories.

Industry trade contacts, accountants and professional networks

Trusted professionals and contacts in your target sectors can share potential opportunities and insights to help you judge viability. These can include trade associations, networking events, LinkedIn groups or even your own client base.

Direct outreach to business owners considering retirement

Why not do your own digging, identifying and proactively reaching out to owners of businesses closely aligned with your target criteria? Local directories and Companies House can help. However, this can be time-consuming, requiring a lot of communication that may hit dead ends.

Explore management buyout (MBO) opportunities

There may be existing management buyout opportunities in a business you know, while M&A advisors and private equity circles can alert you to business owners looking to retire or sell to a new management team.

Other options when exploring how to buy a small business

• Succession planning referrals – advisors helping business owners plan retirement or exits may have clients that need buyers
• Local chambers of commerce and enterprise hubs – these organisations can help connect buyers and sellers
• Insolvency practitioners and turnaround specialists – these professionals can reveal opportunities to acquire assets or businesses at a discounted price

How long does it take to buy a business in the UK?

It will vary, depending on your predicament, such as the size of the business you want to buy, any barriers to purchase, difficulties negotiating over price, etc. However, most business acquisitions take between 3 and 9 months, with smaller businesses and well-prepared transactions at the lower end. 

Other factors that can delay a business purchase include:

• Incomplete or inaccurate financial records: If sellers don’t have up-to-date accounting information, it slows down due diligence and hampers negotiations. Sellers resistant to providing financials promptly are a red flag.
• Legal and regulatory complexity: Depending on your sector, compliance steps and legal issues can hold things up, in terms of ticking necessary regulatory boxes and obtaining licenses or certifications.
• Lengthy/tricky negotiations: Pricing disputes are common, while agreeing on warranties, earn-outs and transition terms can halt progress. It’s likely you’ll need to provide counteroffers before a price is agreed.
• Red flags during due diligence: Concerns from your findings, such as tax liabilities and legal disputes, can mean delving deeper or renegotiating terms.
• Poor communication: Slow dealings between various parties and poor responsiveness from solicitors or brokers can delay timelines.
• Funding or finance issues: If you’re dependent on external funding (from business loans or equity finance), approval delays can push back timelines.

Legal and financial steps involved in buying a business

When learning how to buy a business, you’ll find there are numerous legal and finance-related tasks to face, from negotiating and structuring a deal to conducting due diligence and meeting compliance requirements. Let’s look at the main legal and financial areas of focus and the key steps for each.

Initial agreement and deal structuring

Before striking a deal, you need to consider the following:

• Signing an NDA, a confidentiality agreement that protects sensitive business information during your initial discussions with the seller.
• Creating heads of terms, which outline the key commercial terms agreed in principle, such as the price, various conditions and payment structure.
• Deciding on your deal structure – this can be a share purchase or an asset purchase, where you either buy the company itself or certain business assets, which have different legal and tax-related implications.

Due diligence (legal, financial and operational)

Comprehensive due diligence is critical, and we’ll go into more detail about how to conduct due diligence processes later in this article, but it involves financial, legal, operational and commercial investigation. 

You need to look under the hood, including the company’s footprint and money management, ownership breakdown and liabilities. Plus, it’s important to get a clear view of the market position, competition and opportunities (and barriers) for growth.

Legal documentation and compliance

There are various legal documents you need to draft and sign when buying a business, plus regulatory requirements to ensure you’re compliant. Here are the main things to tick off:

• Sale and purchase agreement (SPA) – a legally binding contract that outlines the terms of sale, warranties, indemnities and conditions for completion.
• Disclosure letter – the seller’s formal response to the warranties, highlighting any exceptions or known risks.
• Transfer/assignment of contracts – you need to review, update or reassign key agreements with customers and suppliers, plus certain leases.

Also, there are processes you may need to undertake, depending on your situation and industry, such as transferring or reapplying for permits or licenses, getting shareholder/board approval and arranging TUPE (consulting with affected staff if employees need to be transferred).

Financing and tax structuring

As with any business, you need to decide on the right structure that provides business benefits and tax relief. Get advice from accountants and tax experts.

If seeking acquisition funding, you need to determine the most suitable financing options and negotiate favourable terms, for manageable loan repayments or investor partnerships that let you retain a level of control or profit share with which you’re comfortable.

Completion and post-completion

The final steps in how to buy a business include signing legal documents, transferring ownership and making payments before the following post-completion tasks:

• Stock valuation, working capital adjustments and earn-out tracking.
• Notifying Companies House, HMRC and other stakeholders (banks, insurers, customers, suppliers, employees, etc.).
• Handover, integrations and operational transitions, including technology, processes and staff.
• Sharing news of your business acquisition with the wider world through various offline and online channels.

How to assess a business and conduct due diligence

When it comes to assessing a prospective business to buy, you need to do some initial evaluation before doing more intricate investigation and research. Top-level considerations include: 

• Assessing the company’s market share and position, current and emerging competitors and growth potential.
• Understanding the reason why the business wants to sell – is the owner retiring, or is it to do with economic or market conditions?
• Judging how well suited the business is to your goals, skills and resources.

Next, you need to conduct extensive due diligence. Here we outline the different areas of due diligence and what they involve:

Financial due diligence

• Reviewing key financials, including profit/loss statements, cash flow, forecasting and balance sheets
• Checking records of tax filing and payments
• Assessing profitability and revenue potential, including customer concentration, recurring income and seasonal fluctuation
• Getting a clear view of any existing debt, liabilities, guarantees and insurance

Operational and commercial due diligence

• Looking at employee contracts, staff turnover and dependencies
• Understanding whether TUPE is required
• Auditing systems, processes, products, infrastructure and inventory 
• Inspecting the condition of business premises, assets and equipment
• Evaluating existing customer and supplier relationships and identifying any supply chain or revenue risks
• Analysing market trends, emerging risks and regulatory changes 

Legal due diligence

• Investigating ownership and company structure
• Checking existing contracts with customers, suppliers and loan/lease providers
• Exploring potential legal and compliance issues, from regulatory breaches or fines to any ongoing litigation 
• Ensuring intellectual property is owned or licensed

With the insights from due diligence, you’ll be able to define the key risks, red flags and opportunities and identify areas that need addressing or renegotiating.

Consider how your findings affect your risk appetite, motivation or valuation. Then you can decide whether the acquisition is worth pursuing or if it’s time to walk away.

How much money do you really need to buy a business?

So, how much does it cost to buy a business? When looking at where and how to buy a business, you need to think beyond the company’s value and likely purchase price. There are various other costs, such as:

• Legal fees and costs for meeting compliance
• Staffing needs and/or TUPE processes
• Working capital for the post-acquisition period
• A buffer for unexpected costs and investment needs
• Transactional fees and any other additional charges

Establish a realistic budget and build in room for manoeuvre to minimise the risks of financial difficulties during the acquisition process and after the sale goes through. 

Can I buy a business with no money?

Obviously, having personal capital available to invest in a business purchase is an ideal scenario, but yes, you can buy a business with no money. Many people or organisations buy businesses by taking out a loan, sourcing investors or engaging in finance agreements that enable purchases with debt to be spread across a number of months or years.

Once you’ve worked out what money you need, think about how much you can borrow to buy a business. 

Options for buying a business with little or no money

When establishing where and how to buy a business, a key consideration is what money you have and how to raise capital to buy the business.

Here are the main acquisition financing options if you have little existing capital and need funding to support your venture:

• Seller financing: An agreement between the buyer and seller, where you provide a deposit to secure the purchase and pay the rest in instalments, deferred payments or vendor earn-outs (based on future performance).

• Equity partnerships: Venture capital and private equity firms will seek shared ownership and a percentage of future profits in exchange for funding.
• Mezzanine financing: A hybrid form of funding combining equity and debt financing, where both assets and equity act as security.
• Crowdfunding: Peer-to-peer lending platforms that allow you to raise funds from various individuals and investors.
• Debt financing, including acquisition loans: This lets you bridge funding gaps and spread the cost of buying a business, repaying the loan over a pre-agreed number of instalments, including interest fees.

How to get a loan to buy a business in the UK and why flexibility is important

Perhaps the least complex funding route, and often the quickest, business loans enable fast access to funding with flexible repayment terms.

You can apply for a secured or unsecured loan, depending on what’s most suitable for your needs. A secured loan requires business assets as collateral to secure the funds, while an unsecured loan doesn't (although you may need to provide a personal guarantee). 

Unsecured loans are typically shorter-term financing options, which usually incur higher interest rates to account for increased lender risk. However, digital lenders like iwoca provide more flexible terms and simpler applications than more traditional secured loans from banks. 

You can use the loan to bridge funding gaps, cover the down payment and/or for working capital needs after the purchase.

Is getting a loan to buy a business difficult?

If you’re wondering how hard it is to get a loan to buy a business, it’s often easier than getting a loan to start a new one. Lenders will assess a range of factors before deciding whether you’re eligible, what risk level you pose and the terms they’re willing to offer. So, as long as you present clear and accurate information and financials, along with a compelling case for buying the business, you have a good chance of being approved.

There are more hoops to jump through when applying for a bank loan. Eligibility terms and documentation requirements are typically more stringent compared with private lenders, like iwoca, with applications and approvals generally taking a lot longer. 

If you apply for a loan from digital lenders, you can do the process online with minimal documentation. At iwoca, we look beyond the credit score, focusing on business plans, profitability and revenue potential, providing easier finance access to new and small business ventures.

Learn more about our loan application process and the benefits of our Flexi Loan solutions.

Common mistakes to avoid when buying a business

There are various pitfalls to look out for when buying a business in the UK, so we’ve outlined some common mistakes to avoid: 

• Failing to do extensive due diligence – if you don’t have a comprehensive view of the company you want to buy, you’ll be exposed to numerous risks.
• Not thinking about the working capital required post-deal – it’s best to overestimate what you might need and have a buffer for unexpected costs.
• Ignoring the importance of culture and change management – it’s good practice to gauge the existing dynamic, morale and resistance to change.
• Overestimating your capabilities and potential for growth – be realistic about your skills and the market conditions to set the right expectations.
• Overpaying and agreeing to unfavourable terms – it’s crucial to validate your research and seller projections with industry and legal experts, including professional valuations.
• Rushing the process – it can be tempting to speed things up, especially amid frustrating delays, but skipping steps is dangerous.
• Overlooking customer/supplier risks – evaluate the revenue spread and diversification needs to address the risk of losing key customers or supplier relationships breaking down.
• Inadequate post-acquisition plans – put a clear action plan in place for the months following completion to hit the ground running.

How iwoca can help you buy a UK business

As a leading business loan provider for SMEs in the UK, we provide fast and flexible funding solutions to fuel business growth and support ambitious entrepreneurs. 

Our popular Flexi-Loans offer the following benefits:

• Easy online applications with minimal documentation required
• Access to loans of up to £1 million
• Fast approvals – decisions often within 24 hours, and same-day fund transfers
• Only pay interest on funds you draw down
• Fee-free early loan repayments

We can offer advice on how and where to buy a business in the UK, bridge a funding gap and provide additional working capital, when required, for operational needs.

Find out how to get a business loan with iwoca and use our repayment calculator to see your likely monthly repayments.

Sources:

• How to Choose the Right Business Acquisition Finance [iwoca]
• Getting a Loan to Buy a Business [iwoca]
• How to Buy a Business in the UK [BusinessesForSale.com]
• Buying a Business: The Complete Guide to a Successful Purchase [Accounts and Legal]
• Getting a Loan to Buy a Business [iwoca]
• Where to Buy a Business [Reddit /smallbusinessuk]

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