Conceptualising the process as a series of steps can help you effectively navigate buying a business.
Now let’s delve more deeply into the final part of the process: completing the purchase.
Once a deal is negotiated in principle – including, of course, the price – there are still some remaining tasks to complete.
In arriving at an agreement you will have signed ‘heads of terms’ with the seller that sketch out the details. However, a final contract – the sale agreement – will need to be signed to seal the deal.
Thoroughly check the contract before you sign – ideally with the help of professional advisers – to make sure that the spirit and details of the heads of terms have been adhered to. Look for vaguely worded terms and unexpected exclusions, limitations or liabilities which could disadvantage you once you begin to trade.
Your own advisers will want to carry out further checks – for example to confirm tax and financial implications of the deal.
Also ensure that a schedule of remaining tasks has been drawn up.
Tip: It may be wise to obtain a binding non-compete agreement from the seller – consult your adviser on this point (a non-compete agreement proscribes the seller from competing against you in the same industry for a specified number of years).
Whether you arranged a bank loan or had enough cash to fund the purchase entirely out of your own pocket, once the sale contract has been signed, you must pay the vendor within the agreed timescale. The seller may have agreed to deferred payments – payment by instalments over a pre-agreed number of years.
Transfers and registrations
You must notify Companies House of the change in ownership as well as HMRC, as there will be implications for VAT registration, PAYE, national insurance and other taxes. Depending on the industry, there may be trade associations to inform, plus licences, leases, client contracts and other paperwork to update.
Employees, suppliers, clients and customers should be the first to hear about the change of ownership, so the announcement should happen as quickly as possible. The seller may wish to approve the wording of any announcement too.
Should there be an ongoing period of contact with the seller – for example if they agreed to help out for a transition period post-sale (see the final section) – then it may be wise to encourage such input.
The announcement should, of course, be upbeat and reassure all stakeholders that you intend to protect the business’s strengths even as you strive to implement improvements. The statement is often accompanied by an official press release.
Tip: Some parties, such as the business’s major clients and suppliers, may also warrant and/or expect a personal introduction to the new owner.
There are also mundane practicalities to consider, such as understanding which keys open what doors and cabinets, codes for alarm systems and when refuse and recycling is collected. You will also need to notify the business’s utility providers, banks, insurance companies and other relevant institutions about the change of ownership.
Make sure that the seller authorises access to all of the company’s business records to minimise the risk of disruption to customer relationships and the smooth course of everyday trading.
It’s not uncommon for employees to be mistrustful of new owners, especially if they had a strong bond with the previous proprietor or the incoming owner makes sweeping changes without consultation.
So reassure staff at the outset of your intention to preserve everything good about the business – from corporate culture to working practices – lest your new charges seek employment elsewhere. Then reassure them that you are ready to listen and learn before you make any changes.
Employees have the right to be consulted about any staff reorganisation, so seek legal advice if you intend to make personnel changes. The terms and conditions of employment contracts will be unchanged by the transfer of ownership.
Tip: Though you won’t be obliged to take on existing pension schemes, anything which replaces them should be just as generous.
Where a period of post-sale training from the seller has been negotiated, you can ‘bed down’ more quickly and get a stronger operational understanding of the business early on. The arrangement can also reassure the seller that you will be well equipped to preserve the revenues and reputation they’ve spent years establishing.
As the new owner, you will naturally have your own ideas for improving the business, but it’s perhaps wise to delay the introduction or even airing of your more radical ideas until this training period has elapsed.
Once you’re accustomed to your new environment and the day-to-day demands of the business, it’s time to put your plans into practice and write your own success story – good luck!
Jo Thornley is head of brand and partnerships at Dynamis.
Joining in 2005 to co-ordinate PR and communications and produce editorial across all business brands, she earned her spurs managing the communications strategy and now creates and develops partnerships between BusinessesForSale.com, FranchiseSales.com and PropertySales.com and like-minded companies.