Buying a business in the UK is, without doubt, a quick and convenient way to start a business instead of starting from scratch. However, you will have to invest time and resources into finding a business that perfectly suits your business goals. There are numerous things to take into consideration when seeking to buy an existing business.

One of the best sources of information relating to a business is the seller. Note that the seller should be able to make available all sorts of information relating to the finances, marketing, assets, ownership, and operations of the business in question. Have it in mind that asking the right questions is very critical if you intend to make an informed decision on whether or not to buy the business.

Buyers are known to take back their offer for a business, or even withdraw from the deal entirely after discovering a few uncomfortable details not made available. Making extensive inquiries will enable you to know where to steer the conversation to enable you to find out all you need to know about the business.

Questions to Ask Before Buying a Business in the UK

  1. Are you willing to commit to a non-competition agreement?

When looking to buy an established business in the UK, you may want a guarantee that the seller won’t go on to start up a similar business that will compete directly with your business.

Aside from being a potential rival, note that the amount of expertise and insider knowledge available to that business might threaten the existence of your business and even take away your customers and affect your supplier relationships. Note that any agreement will have to be time-related and must explicitly note geographical limits.

  1. Can I see the company tax returns for the last three years?

When buying an existing business in the UK, make sure you get the company tax returns and not those of the owner. Note that tax returns tell a comprehensive story of a company’s finances, and the company will be eager to avoid HM Revenue & Customs being alerted to any distortion.

Additionally, company tax returns are very important because you will need them to seek external business funding. Don’t forget that filed accounts and tax returns can be legitimate, but can hide the issues impacting the business.

  1. Have you had the business appraised?

This is another question that can help you find out how much the business itself is worth. Since an appraisal is most often carried out through a 3rd party service, you can trust it, as the company involved wouldn’t be involved in the sale of the business, and they will put into consideration details that the seller might not.

  1. What are the yearly gross revenue and profit margin of the business?

This is one way to tell an honest seller from a dishonest one. Have it in mind that no genuine seller will hide the exact figures concerning the revenue and profit margin of the business. It is also crucial that you know how much you can generate from this business, plus what the current overheads are.

  1. Can I see a copy of all documents relating to outstanding debt, including accounts payable, property, and equipment?

You will need these documents to have a comprehensive overview of the company’s cash flow, its worth, and value. Note that late payments might entail that the business is having a hard time staying afloat, or that its vendor relationship is in turmoil.

With these documents, you can have a good understanding of how the company finances have been handled over the previous years. Also, consider asking for the original sales and debtor ledgers too, and find out if they are computerized or manually stored. This will give you a good insight into the business practices of the company.

  1. What assets come with the business?

This may include both tangible (things like delivery trucks, equipment) and intangible (goodwill generated, social media accounts, list of profitable clients) assets of the existing business. It is very important to know every single component you’ll be getting in the sale.

  1. What liabilities are attached to the business?

It is also important to know about any pending debts connected to the business. Also make sure you find out about the mortgage rate of the business premises, equipment acquired on hire purchase (buy now, pay later), and long-term contracts with existing clients. By leveraging this information, a good number of buyers negotiate to have the seller payout any standing debts before they take up the business.

  1. What’s included in the sale?

Note that this question goes beyond just assets coming with the sale. It allows you to squeeze out more information from the seller. While all these assets and components of the sale will be duly noted in the documents presented, this inquiry invites the owner to pitch the business to you and convince you again.

  1. Why are you selling the business?

Most often, you will hear the seller say they are eager for a new challenge, looking to retire, or maybe has health issues. However, if the seller is looking to exit the business owing to dwindling income or they are struggling to keep it afloat, then you may need to carefully investigate or carry out your research.

  1. Can I review the certified financial statements of income, cash flow, and balance sheets for the last three years?

Aside from understanding the viability of the business, have it in mind that businesses are most often valued by their cash flow, and these documents will give you additional information on whether the business has been overvalued, undervalued, or if the seller’s price is a fair one.

Also, remember to ask if the business maintains management accounts. Once you have these documents, ensure to verify any inconsistencies between the management and financial accounts.

  1. What permits and licenses will I have to renew?

In the UK, almost every business has some sort of licensing requirements necessary to make it legal in the eyes of the law. Note that asking the seller this vital question will save you a lot of time and legal troubles down the line.

  1. Will you, the seller, be available to aid in the transition period after the sale?

In addition to having the seller around for some time after the sale to help with the transition, don’t forget to agree on some sort of compensation for their time. Although the compensation can be dependent upon the performance of the company after the deal date, but an arrangement of this type will involve the buyer putting down a significant proportion of the selling price when the deal is struck.

  1. How did you arrive at the asking price?

When looking to buy a business in the UK, your team will come up with an independent valuation. However, it is wise to hear an explanation from the seller on how their own valuation was calculated. Note that this figure may be based on income capitalization, the total value of assets, a multiplier approach, and any other method more inclined to the sector. Always remember that the more insight you can get the better.

  1. Can I speak with the employees and managers, or is the sale strictly confidential?

If the answer is that the sale is strictly confidential, follow up with a question about why employees and/or managers have not been told yet. If it is a confidential sale, then there may be concerns and issues to look into as employees usually bother about redundancy when new owners come in.

If employees barely know about the sale until it has gone through, then how you inform them about the acquisition is vital to the smooth operation of the business. As a buyer, you must understand that integration of staff is critical to the success of any business.

  1. Is the business consistent throughout the year or does it experience seasonality?

In the UK, a good number of businesses have peak periods when demand for products or services are at their highest. Some businesses like gift wrapping may have more profound busy times during special occasions like Christmas and Valentine’s Day.

For other sorts of businesses, like food businesses, demand will most often vary according to the time of year. While stability throughout the year can be easy to accommodate, note that seasonality will always require more careful business planning.

  1. Does your business have employees?

Have it in mind that acquiring a business with employees is quite different from acquiring one without employees. In the United Kingdom, there are numerous requirements and legislation expected of any business with staff, and this may not be something you have experience with, so you need to do more research before placing an offer.

  1. What is the condition of existing fixed assets belonging to the company, such as office equipment, machinery, and vehicles?

You need to know how managers, supervisors, and staff have maintained company equipment, machinery, and vehicles. Have it in mind that poorly maintained company assets can end up driving up business running costs in the long run, especially if the equipment is very crucial to the business.

  1. Is there a close relationship between the company and its customers?

You need to understand that reputations and brands are hard to build, and if the company is not adequately regarded by its current customers, that could mean a potential business issue and a stumbling block to the success of the business. Howbeit, it is up to you to decide what level of damage you are willing to repair. 

  1. What are the conditions in the working environment?

Just like it was noted above, labor laws in the UK are a serious concern and you wouldn’t want to be in the middle of an unfortunate crossfire. Note that if employees of the business work in hazardous situations or suffer significant risks to health and safety, then you may have to make adjustments immediately after the sale.

The business might also require regular checks by health and safety officials and you may need to purchase extra equipment to ensure your business is fully compliant with health and safety laws. Also, check to see if insurance covers for things like employee and public liability are in place.

  1. Do you have any advice for running this business?

Lastly, this is a very important question to ask once you have decided to go on with the purchase. Maybe the previous owner has made excruciating business mistakes or has worked with a frustrating supplier in the past. You can request honest advice about handling the business and advice on how to ensure it remains successful.

Truth be told, buying a business in a complex economy like the UK can be an intimidating process. However, while you might have sector-specific questions of your own to ask the seller, these 20 Questions mentioned above should help you find out the important financial, operational, fiscal, and day-to-day information about the business.