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What are the most important issues to think about when you first consider buying a business? First and foremost, says Adam Stronach, Corporate & Forensic Services partner at Harwood Hutton, potential purchasers should recognize they do not buy businesses every day and there are people out there who do.
“If the purchaser tries to tackle all the issues in buying a business, two things will happen,” says Adam. “First, valuable management time will be diverted away from the purchaser’s existing business. Second, the purchaser could be missing out on a wealth of experience on the advisory and transactional side from engaging professional advisers who help business purchasers days in, day out.”
Adam stresses that the advice sought should be proportionate to the transaction concerned. “Often, clients do not want or need a full-on due diligence exercise before they purchase. Particularly with smaller transactions, the purchaser may well be an entrepreneur who has known the vendor through business connections for a long time.
“In the owner-manager market, there is no sense in replicating knowledge a client already has through a due diligence exercise.”
Of much more significance may be whether a purchaser can, for example, work its newly acquired business to service debt it has taken on to finance the purchase.
“All too often heads of terms are struck with enthusiasm only for the purchaser and the vendor to realise later on that their deal is unworkable,” says Adam.
“Entrepreneurs would be well advised to find professional advisers with strong credentials in helping owner-managers negotiate purchases in the first instance and assess key risks through limited but focused due diligence after a deal has been struck.”
Harwood Hutton helps owner-managers with all aspects of buying a business, from searching for suitable targets at the outset, to finding finance, through to advising the purchasers and their legal advises as deal completion approaches.
“It is relatively easy to say, ‘I want to buy a business’,” says Adam. “Where professional advice from accountants and corporate financiers can be key is in assessing which businesses to approach, whether additional finance is required, how that additional finance is to be serviced, what commercial and taxation implications arise from a proposed purchase, how the transaction is going to be managed, and what to expect once the deal is completed.
“My advice would be to make sure you consult with accountants, business advisers and lawyers who are well versed in the highs and lows of corporate transactions.
“You should never outsource key decisions on targeting and buying a business, but however many times you have bought businesses before, in the owner-manager/SME sector it is seldom appropriate to do everything with only in-house resources.”
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