What you need to know before buying a business

Buying an existing business with an established brand, team and customer base might seem less risky than setting up your own, but that doesn’t mean it’s any less work. Here’s what you need to consider before signing on the dotted line.

Why is the business being sold?

Finding out why the business is being sold should be a top priority. If it’s due to financial instability or a shift in the market that jeopardises future sales, it might not be the right business for you.

In 2017, Starling business customer Stuart Lennon, 49, bought an online stationery shop, Nero’s Notes. He runs it alongside his financial services advisory business, Lime Training and Consultancy, which he set up in 2003.

“Two guys started the company as a side project. I was a customer. They were very open in their blog about it getting to the stage where it was becoming a lot of work for not enough money. So I bought the business off them,” says Stuart.

Lorraine Gannon, 43, bought her first business with her husband Rick in 1995 when she was 20-years-old. “We saw a classified ad in the paper about an outdoor catering business that did hog roasts and burgers,” she says. “We called the number and ended up buying the business from the owner who didn’t want to run it anymore.” Lorraine’s background in accountancy and her husband’s experience as a chef in the army made them the perfect team.

Does the business fit your lifestyle?

One reason business owners sell a business is that it no longer fits their lifestyle - so work out whether it fits yours.

After three years of running the hog roast business, Lorraine and Rick sold up and started working full-time for other companies. But when their first child was diagnosed with cerebral palsy, they wanted more control over their working day. They decided to buy and run a pub and over the next few years they acquired another four, employing 70 people.

“We wanted something that could be a family unit. But we bought the wrong businesses,” she reflects. “Weekends and holidays were our busiest times and we had a young family ourselves so childcare became an issue. It was really challenging.”

Today, they rent out one pub, run a software-as-a-service business, Go Tenant, and have a property portfolio. Their busiest hours are during the day and working week, which fits with their two children. “You need to think about what works for you. For some businesses, you’re pretty much working 24/7.”

For Stuart, location is a key consideration, and he enjoys the freedom of an online business. As an online shop, Nero’s Notes suits the way Stuart splits his time between Andover and Cyprus - he can run the business from anywhere.

Is the business worth its valuation?

When you’re buying a business, the upfront cost is usually much higher than if you’d started something similar yourself. You’re paying for groundwork that’s already been laid and its reputation with existing customers.

On top of the capital to cover the price of the business, you’ll also need to cover fees associated with solicitors, surveyors and accountants.

Usually, you only see the accounts of a company once your offer has been accepted. You can then do your due diligence and the current owners may agree to take it off the market while you investigate.

“All the work you do before you take over will be worth double once you’re running it,” says Stuart. “Assume the worst and make sure it can survive.”

Does the business rely on key staff members?

One component of goodwill is trust between owners, staff and customers. “When you run a small business with a team of around 12 people, it feels like you’re a family. If the owner sells, the team can feel like they’ve been betrayed. We’ve lost several key members of staff because of this,” Lorraine says.

Another reason they decided not to buy the IT company was in fact uncertainty over the software developers. “When only a handful of developers know the code it can be really tricky if they decided to leave when the business is sold.”

Do you believe in the future of the business?

“Buying the business is the easiest bit. It gets harder from there,” says Stuart. “Are you really prepared to roll your sleeves up each and every day? If you aren’t passionate about your business, why should your customers be?”

As a business owner, you need to embrace all parts of it. “There are areas of the business you don’t like but have to do. Doing the books takes discipline but software and apps can make it a lot easier.”

Starling’s mobile business account has been designed to take some of the stress out of managing business finances. “In a minute and a half, I’d opened a personal account. The following day, I opened a business account,” he says. “The ease of use is astonishing.”

To find out more about Stuart, go to limeconsulting.com or nerosnotes.co.uk. For Lorraine, look at gotenant.co.uk. If you’re after a business account, have a look at the features of a Starling business account.