Buying or Selling a Business

Important Disclaimer: These notes are a general statement of the law – there may be errors or omissions. I do not accept responsibility for any loss resulting from reliance on them – please see my full disclaimer

We get asked a lot of questions about buying and selling a business. The most common are:

What is a business worth?

A business is only worth as much as someone will pay for it. If you are selling, this may not be enough for you to give it up. If so, alternatives are –

  • to take on a co-owner
  • not to sell at all (wait for the right buyer to come along)
  • to franchise

Similarly, if you cannot afford to buy the business outright, you may be able to share ownership (by becoming a partner or co-shareholder with the existing owner) or take a franchise. A business transfer agent that specialises in the relevant type of business will be able to advise on its market value. Your accountant will be able to advise whether this is an appropriate price in your circumstances. A business may be worth more if the seller is prepared to continue working in it for a while after the sale. This will help to transfer any personal goodwill. The value of an asset-only sale will be different from that of a sale of shares. The tax effect will also vary.

How can I find a buyer or business to buy?

A business transfer agent is the best person to sell a business. Different business transfer agents specialise in different types of businesses. If you cannot find one for your type of business, accountants often advertise businesses for sale anonymously in appropriate papers.

What will my solicitor need?

If you are selling, your lawyerwill want details of any freehold or leasehold property (and their title documents) to be sold with the business and full details and paperwork for the business itself, such as:-

  • the last three years trading and profit and loss accounts
  • the latest balance sheet
  • an inventory of items included in the sale
  • registration documents, MOT certificates, and other paperwork for vehicles included in the sale
  • leasing, credit-purchase and hire documents for business equipment
  • contracts with customers and suppliers
  • contracts of employment
  • details of any special licences or approvals required for the business

If you are buying or selling a public house, see also these checklists: <Paperwork checklist for pub sells> [Link to PDF] <Paperwork checklist for pub buyers> [Link to PDF]

Your lawyer will tell you how best to provide or interpret this information. If you are buying, your lawyer will check all this paperwork and advise you on any particular issues that arise, such as taking over hire purchase agreement.

How long will it take?

Once the seller provides the information and paperwork their lawyerwill send a draft contract with supporting papers to the buyer’s lawyer. The buyer’s lawyerwill raise any further enquiries that are appropriate and submit searches. Once the enquiries and searches are answered, the only obstacle preventing exchange of contracts will be the buyer’s financial arrangements.

Some of the buyer’s money may be coming from the sale of an existing property or investment, in which case the buyer will not exchange contracts unless that sale is also secure. It is likely that the buyer will need mortgage finance secured on the business assets being bought or on existing assets (such as the buyer’s home) or a combination. Whatever the position, the buyer’s solicitor will need to collate paperwork to satisfy the mortgage lender’s requirements and this can be a lengthy process.

There are always exceptions but, as a general rule and if there are no special complications or problems, you could expect to exchange contracts about four weeks after the draft contract is submitted, with completion to take place between two and four weeks later. To achieve this requires co-operation and reasonable efficiency on all sides: from buyer and seller, their respective solicitors and accountants, and from anyone else involved in the process, such as finance and insurance arrangers. Your solicitor should keep you informed of progress.

See also <commercial property transactions> [Link to Commercial Property Transactions].

What will it cost?

Unless your lawyer agrees a fixed fee, the legal fees will depend on how much of their time the job takes and how complex it is. Some lawyers also charge more for higher value transactions. Your lawyer will be happy to provide an estimate of their fees in advance. The more detail you supply, the more accurate the estimate will be . In addition to the lawyer’s fees there will be other costs such as: Land Registry fees, search fees and stamp duty – these may depend on the value of the transaction.

Should I co-operate with the buyer or seller?

Yes, but only up to a point. The seller should provide enough information to interest the buyer and answer any questions raised fully and accurately (preferably through their solicitor), including supplying information required by the buyer’s mortgage lender. The seller should not volunteer any more and should not let the buyer get involved in the business until they are legally committed. The buyer should not rely on information supplied direct unless checked by their lawyer.

What happens on completion?

As well as handing over control of the property and the business, you need to split the income and expenses of the business as at the completion date. This is a chore, which has to be considered properly in advance. I recommend preparing a draft calculation a few days before completion to minimise the scope for disagreement at the last minute.

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