Whether buying a business to expand your operations or selling a business to capitalise on years of hard work, the process can feel overwhelming. Numerous factors must be considered and ensuring a smooth transaction is key to avoiding unnecessary stress or costly mistakes.
In this blog, we’ll explore some effective strategies that can help make buying or selling a business a success.
Conduct thorough due diligence
Due diligence is one of the most critical aspects of buying or selling a business. This process ensures that all business financial, legal and operational elements are in order. For buyers, verifying the company’s financial health, assets, liabilities and any ongoing legal issues is essential. Sellers should prepare by ensuring all documentation, such as financial statements and tax records, are up to date and accurate.
According to a report by the UK Department for Business and Trade, inadequate due diligence can lead to over 30% of business acquisitions falling through at an advanced stage. This statistic highlights the importance of thoroughly reviewing every detail before proceeding with a transaction.
We recommend engaging legal and financial professionals early to help identify any red flags. This will allow both parties to approach negotiations with confidence and clarity.
Get a business valuation
Understanding the true value of the business is crucial for both buyers and sellers. Buyers must ensure they pay a fair price, while sellers want to maximise their return. A professional valuation can give you an accurate picture of the business’s worth based on its financial performance, assets, market conditions and future growth potential.
The most common valuation methods include the earnings multiplier and discounted cashflow analysis. These provide insight into a business’s profitability and sustainability. In 2023, according to the British Business Bank, businesses in the UK sold for an average of four to six times their earnings, depending on their sector and size. This information can serve as a solid starting point for negotiations, helping both sides avoid unrealistic expectations.
Prepare for negotiation
Negotiation is a vital stage of any business transaction. Both buyers and sellers should be prepared to discuss terms in detail, including price, payment structure, warranties and transitional support. It’s important to have a clear idea of your priorities before entering negotiations, whether achieving the highest sale price or securing favourable terms for long-term success.
For buyers, consider whether deal elements, such as payment instalments or earn-outs, can provide flexibility. Sellers might offer post-sale consulting to ease the transition, adding value to the offer and potentially justifying a higher price. A calm, professional approach to negotiation helps maintain goodwill on both sides, reducing the risk of last-minute breakdowns.
Plan for a smooth transition
After the sale or purchase agreement is signed, attention turns to the transition. For a business sale, this often includes handing over key relationships, transferring intellectual property and ensuring staff feel supported during the change.
Buyers should have a detailed plan for integrating the business into their existing operations. This could involve reviewing management structures, technology systems and customer contracts. For sellers, offering support during the handover period can ease the process, ensuring employee and client continuity.
Consider tax implications
Both buyers and sellers must be aware of the transaction’s tax implications. For sellers, capital gains tax (CGT) may apply to the profits from the sale. However, several reliefs are available, such as business asset disposal relief (formerly known as entrepreneurs’ relief), which can significantly reduce the amount of tax payable.
On the buyer’s side, acquiring a business can offer tax advantages such as claiming capital allowances on certain assets or benefiting from research and development (R&D) tax credits, depending on the nature of the business. It’s always a good idea to consult a tax adviser to ensure you’re maximising any potential tax-saving opportunities. In 2024, the government reported that businesses claiming R&D tax relief saved an average of £50,000 annually, which can be a valuable boost to post-acquisition cashflow.
Engage professional support
Whether buying or selling, involving experienced professionals can make a world of difference. Financial advisers, accountants and solicitors can offer guidance throughout the process, ensuring all legal and regulatory requirements are met and that your best interests are protected. Their expertise will be invaluable in valuation, due diligence and contract negotiations.
At the same time, working with experts who understand your industry can help identify opportunities or challenges specific to your sector. For example, a technology business may face different regulatory hurdles than one in retail. Having the right professionals on your side gives you the peace of mind that no critical detail is overlooked.
We can help
Buying or selling a business is a major decision that requires careful planning and execution. By conducting thorough due diligence, understanding the business’s value, preparing for negotiations and seeking professional advice, you can ensure a smoother transaction and protect your interests.
At Thompson Wright, we have years of experience helping clients through the complexities of corporate transactions. Our team is here to guide you every step of the way, from initial planning to final handover.
Get in touch to learn how we can support your business journey.