Buying a business

Buying an existing business can be an exciting and highly rewarding venture. It may also be easier and less risky than starting a company from scratch.

However, it’s still a complex process that requires in-depth research, careful consideration of a number of factors, and often a large upfront investment - it’s likely you’ll need funding to help cover the cost.

Find our expert guides on this page as well as further information below on what to consider when buying a business.

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Should I buy a business?

Before beginning the process of buying a business, it’s important to weigh up the advantages and potential drawbacks, which include:

Pros

Existing customers. An existing business will usually have a proven product or service and a solid customer base. This can save you a lot of time and resources in launching and testing a completely new product. The other major benefit of an existing customer base is that it can give you a steady cash flow and revenue stream from day one.
Established brand. A strong brand is one of the most valuable assets a business can have, helping to retain customers and attract new ones. Buying a company with high brand recognition and loyalty means you can reap the benefits without the need to invest as much time and effort in building a brand from scratch.
An existing team. Buying a business with an established team can give you access to skilled and knowledgeable employees.
Historical data. An existing company will have financial records and sales and performance data that can help you plan, make informed decisions, and forecast future performance with greater accuracy.
Potentially easier access to finance: Some finance providers may consider a business with a track record less risky, which could make securing loans or other forms of investment easier than it would be for a startup.

Cons

High initial investment. The upfront cost of buying a business can be significant, but luckily there are finance options available to help. You’ll also need to consider the cost of enlisting professional advisers like accountants and solicitors.
Inherited problems. From outstanding debts to operational challenges and reputational issues, you could inherit some potential problems. Conducting thorough due diligence is critical to make sure you’re aware of all aspects of the business you’re buying.
Resistance to change. Sometimes existing employees, suppliers, or customers can resist the changes that come with new ownership. However, a clear transition plan and effective communication can help you overcome these challenges.

How to buy a business

There are different ways to buy a business which involve different types of buyers – for example, you may be an employee or part of a management team. Some of the most common ways of buying a business include:

Management buyout (MBO)

This is where an existing management team or workforce buys all or part of a business from its owners. Typically the smoothest type of business succession, a management buyout often provides a quicker completion for the vendor and gives the MBO team the opportunity to utilise their knowledge of the business.

Management buy-in (MBI)

When an external management team buys into a target company it’s known as a management buy-in. It can be a good way for experienced managers or management teams to become a majority stakeholder of a business.

Buy-in management buyout (BIMBO)

A buy-in management buyout combines elements of an MBO and MBI. It can be a good option for businesses with strong operational management but a lack of leadership with the exit of the selling owner. It occurs when the existing management team buys a business alongside external managers, who eventually join them as owners and often sit on the new management team.

Vendor-initiated management buyout (VIMBO)

A vendor-initiated management buyout is effectively the same as a management buyout, except it’s initiated by the existing owner rather than the management team.

Acquisition or trade sale

The purchase of one company by another company or business entity is known as a trade sale or acquisition. The buyer is often a strategic acquirer operating in the same industry.

Employee buyout (EBO)

This is where the employees of a company buy the business from its owners. It can be a way of preserving jobs and rewarding loyal employees, who as shareholders will be incentivised to grow the company.

What to consider when buying a business

There are lots of factors to consider when you’re buying a business. We cover these in more detail in our 'How to buy a business' guide, but here is a quick summary of some of the key factors:

Timing – getting the timing right, from both a personal and financial point of view, is key. It’s crucial to take stock of your own personal circumstances and to not rush into a decision, in addition to researching the macroenvironment and microenvironment of the business you’re thinking of buying.
Evaluating the company’s financial health – this generally involves analysing the financial statements (balance sheet, income statement, and cash flow statement) for the past three to five years.
Legal and regulatory issues – these could include contracts and agreements, intellectual property rights, licenses and permits, and employment matters. Engaging legal professionals is crucial.
Due diligence – key areas include financial due diligence, market due diligence, legal due diligence, operational due diligence, and environmental due diligence.
Valuation – you’ll need to figure out what the business is worth in order to negotiate a fair price. An adviser can help in determining a range of valuations and support in your negotiations.
Financing – it’s highly likely that you’ll need finance to help you buy a business. Take a look at the different funding options available and make sure to get the right finance for your needs.

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