10 Concepts You and I Can Learn About Buying Businesses in the UK From How2Exit's Interview With John Andrews - London Attorney. Watch Here E15
Here is what my team and I learned from this interview: (These are notes from team members, writers, sometimes AI, and even listeners who submitted what i learned loosely edited and shared here) - If it seems a bit unrefined, you're reading our notes, so. yeah. -Ron
Concept 1: Conduct Due Diligence
Conducting due diligence on UK businesses is an important step in the process of buying or selling a business. It is important to understand the legal and financial aspects of the business before making any decisions. This process involves researching the business’s financials, legal documents, and other relevant information.
One of the first steps in due diligence is to research the financials of the business. This includes looking at the company’s balance sheet, income statement, and cash flow statement. These financials can provide insight into the company’s current financial situation and any potential risks associated with the company. Additionally, it is important to research the company’s past financial performance to get an understanding of the company’s historical performance.
Another important part of due diligence is researching the legal documents associated with the business. This includes contracts, leases, and other documents that are relevant to the business. It is important to understand the terms of these documents and any potential risks associated with them. Additionally, it is important to understand the company’s corporate structure and any potential legal issues that may arise.
In addition to researching the financials and legal documents, it is also important to research the company’s current market position. This includes understanding the company’s competitive advantages, customer base, and potential growth opportunities. Additionally, it is important to research the company’s current customers and suppliers to understand the company’s current relationships with them.
Due diligence is a key factor in any business transaction. It is a process of researching and verifying the financials, legal documents, and other relevant information of the business. This is done to ensure that the transaction is beneficial to both the buyer and the seller. It is a necessary step to ensure that the buyer is making an informed decision about the purchase and that the seller is getting the best possible deal for their business.
Due diligence can be a time-consuming process, but it is essential for any business transaction. It is important to understand the financials of the company and to be aware of any potential liabilities. Additionally, it is important to ensure that any personal expenses are removed from the books before the business is put up for sale. This will give potential buyers a better understanding of the true profitability of the business and help them make an informed decision.
Due diligence also involves researching the legal documents of the business. This includes understanding the contracts that the company has entered into, the terms of the contracts, and any potential liabilities that the company may have. Additionally, it is important to understand the company’s tax liabilities and any other relevant information.
Finally, it is important to research the company’s history. This includes understanding the company’s past performance, any potential legal issues, and any potential risks associated with the company. Additionally, it is important to understand the company’s current management team and any potential risks associated with them.
Conducting due diligence on UK businesses is an important step in the process of buying or selling a business. It is important to understand the legal and financial aspects of the business before making any decisions. This process involves researching the company’s financials, legal documents, and other relevant information. Additionally, it is important to research the company’s current market position, customer base, and potential growth opportunities. Finally, it is important to research the company’s history and any potential risks associated with it. By conducting due diligence, one can gain valuable insight into the company and make an informed decision about buying or selling the business.
Concept 2: Know True Profit Before Sale
When conducting due diligence, it is important to know the true profit of the business before making any decisions. This is especially true for small businesses, as their financial information is often limited. For larger businesses, however, audited accounts are available at Companies House that provide more detailed information. Additionally, management accounts on a month-to-month basis can provide insight into the business’s current performance.
It is also important to plan ahead when selling a business. For example, if the owner is running a lifestyle business, it is important to stop putting personal expenses through the books and show the true profit of the business in order to maximize the value of the business. Additionally, it is important to have the books in order before putting the business up for sale. This includes removing any personal expenses, such as vehicle leases and phone bills, from the books. By doing this, it will be easier for potential buyers to conduct their due diligence and understand the true profitability of the business.
In conclusion, it is important to understand the true profit of a business before making any decisions. This involves researching the company’s financials, legal documents, and other relevant information. Additionally, it is important to plan ahead and remove any personal expenses from the books before putting the business up for sale. By doing this, potential buyers can gain a better understanding of the true profitability of the business and make an informed decision about buying or selling the business.
Concept 3: Be Realistic With Pricing
When it comes to pricing, it is important to be realistic. As an experienced M&A lawyer, I have seen many deals fall through because the seller had unrealistic expectations about what their business was worth. Sellers should be aware of the multiples that apply to their particular sector and not rely on the advice of brokers who may be incentivised to inflate the value of the business to make a sale. In many cases, brokers will tell the seller that they can get more for their business than what it is realistically worth.
It is also important to be honest about the financial information that is provided to potential buyers. Buyers are not unreasonable and will conduct their own due diligence to uncover any discrepancies. If the seller is not honest about the financials, it can be a deal breaker.
In order to protect both parties, it is a good idea to have a retention or deferred consideration in place. This will ensure that any potential claims are addressed in a timely manner and that the seller is not left with a financial burden after the sale.
In conclusion, it is important to be realistic when it comes to pricing a business. By being honest about the financials, having realistic expectations about the value of the business, and protecting both parties with a retention or deferred consideration, buyers and sellers can ensure that the deal is successful.
Concept 4: Investor Cash Can Fund Purchase
Investor cash can be a great way to fund the purchase of a business. Investor cash can provide a seller with the assurance that they will get their money at the end of the deal, as well as allowing them to pay a lower tax rate on the money they receive. For buyers, investor cash can provide the capital necessary to make the purchase without having to put down any of their own money.
When considering the use of investor cash to fund a business purchase, there are several factors to consider. First, the buyer must ensure that the investor cash is coming from a reliable source. Second, the buyer should also ensure that the money is being used in a way that is beneficial to both parties. Finally, the buyer should also consider any potential risks associated with the investor cash, such as the possibility of the investor not being able to fulfill their obligations.
When it comes to pricing a business, the most important factor is to ensure that both the buyer and the seller are happy with the deal. A buyer should be realistic when it comes to the value of the business, and a seller should be open to considering different payment options, such as deferred consideration or a retention. By taking these factors into consideration, both parties can ensure that the deal is successful.
In addition to pricing, the use of investor cash can be a great way to fund the purchase of a business. Investor cash can provide a seller with the assurance that they will get their money at the end of the deal, as well as allowing them to pay a lower tax rate on the money they receive. For buyers, investor cash can provide the capital necessary to make the purchase without having to put down any of their own money. However, it is important to consider the risks associated with investor cash, and to ensure that the money is being used in a way that is beneficial to both parties.
Concept 5: Do Your Research Before Buying
Before using investor cash to purchase a business, the buyer should do their research. This includes researching the company, the industry, and the market. It is important to understand the financials of the company, including their profits and losses, their cash flow, and their debt. It is also important to understand the competitive landscape, and to make sure that the company is in a position to succeed. Additionally, it is important to understand the legal and regulatory environment in which the company operates. This includes researching the laws and regulations that govern the industry, as well as the tax implications of the purchase.
The buyer should also research the seller. This includes researching the seller's financials, their motivations for selling, and their reputation in the industry. Additionally, the buyer should research their own financials, and make sure that they have the capital necessary to complete the purchase.
Once the buyer has done their research, they should create a business plan. This plan should include the details of the purchase, including the purchase price, the terms of the deal, and the payment structure. The plan should also include details about how the business will be operated, including the management structure, the marketing strategy, and the financial goals. Additionally, the plan should include a timeline for completing the purchase and a budget for the purchase.
Once the buyer has created a business plan, they should negotiate with the seller. This includes negotiating the purchase price, the terms of the deal, and the payment structure. Additionally, the buyer should ensure that the seller is aware of the risks associated with the purchase and that they are comfortable with the terms of the deal.
Finally, the buyer should consult with a lawyer and an accountant. This will ensure that the purchase is done legally and that all of the tax implications are taken into account.
By researching the company, the industry, the market, the seller, and their own financials, and then creating a business plan, negotiating with the seller, and consulting with a lawyer and an accountant, buyers can ensure that they are making an informed decision when purchasing a business. Doing research before buying a business can help buyers ensure that they are getting a good deal and that their purchase is beneficial to both parties.
Concept 6: Know The Sector You're Buying
When it comes to buying a business, it is important to know the sector you are buying into. Knowing the sector you are buying into is key to understanding the risks and rewards of the purchase. It is important to understand the industry and the market, as well as the seller and their financials. Doing research on the sector and the company you are buying into can help you make an informed decision and ensure that the purchase is beneficial to both parties.
When researching the sector, it is important to understand the industry, the market, the seller, and their financials. Understanding the industry and the market can help buyers understand the risks and rewards associated with the purchase. It is also important to understand the seller and their financials, as this can help buyers understand the seller's motivations and their expectations for the purchase.
Once buyers have done research on the sector and the company, they should create a business plan. A business plan should outline the buyer's goals and objectives for the purchase and provide a roadmap for the buyer to follow. It should also include a financial plan and an analysis of the risks and rewards associated with the purchase.
After creating a business plan, buyers should then negotiate with the seller. Negotiations should focus on the price, the terms of the purchase, and the seller's expectations. It is important to be realistic and honest during negotiations, as this will help ensure that both parties are satisfied with the purchase.
Finally, buyers should consult with a lawyer and an accountant. A lawyer can help buyers understand the legal implications of the purchase and ensure that the purchase is legally sound. An accountant can help buyers understand the financial implications of the purchase and ensure that the purchase is financially sound.
In conclusion, it is important for buyers to understand the sector they are buying into. By researching the company, the industry, the market, the seller, and their own financials, and then creating a business plan, negotiating with the seller, and consulting with a lawyer and an accountant, buyers can ensure that they are making an informed decision when purchasing a business. Doing research before buying a business can help buyers ensure that they are getting a good deal and that their purchase is beneficial to both parties.
Concept 7: Knowledge Is Key To Success
Knowledge is key to success in any endeavor, and this holds especially true when it comes to buying a business. Before making any purchase, it is important to do your research and understand the industry you are entering into. This means researching the company, the industry, the market, the seller, and your own financials. This research can help you create a business plan, negotiate with the seller, and consult with a lawyer and accountant. By doing this research, buyers can ensure that they are making an informed decision when purchasing a business.
In the podcast, an example was given of a furniture business. The buyer initially thought that this would be a straightforward business, but after doing some research and talking to people in the industry, they found out that there was a lot more to it than they initially thought. They learned that there was a lot of corporate knowledge that went into the industry, such as space planning, health and safety issues, and materials that were allowed in certain states. The buyer also found out that the sales cycle for large moves and furnishings could be up to 12 to 18 months.
This example shows the importance of doing research before making a purchase. It is important to understand the industry you are entering into and to be aware of any potential issues that could arise. In this case, the buyer was able to avoid making a costly mistake by doing their research and learning more about the industry.
Knowledge is key to success in any endeavor, and this is especially true when it comes to buying a business. Doing research before making a purchase can help buyers ensure that they are getting a good deal and that their purchase is beneficial to both parties. By understanding the industry, the market, the seller, and the company, buyers can make an informed decision and avoid costly mistakes.
Concept 8: Send Out Multiple Letters
One of the most important things to consider when buying a business is the cost of the purchase. Buyers should evaluate the salary of a top-notch industry general manager and make sure that the business can afford to pay them. Additionally, buyers should consider the seller's salary, dividends, benefits, and other costs that may have been stripped out of the sale. It is important to reinvest these costs in order to ensure the success of the business.
Another key factor to consider when buying a business is the amount of time it will take to run the business. If the business is small, it may not generate enough revenue to justify a full-time staff and buyers may have to take on many of the duties themselves. This can take away from time that could otherwise be spent on more important tasks. Therefore, it is important to consider the time commitments of a business before making a purchase.
Finally, when looking for businesses to buy, buyers should consider multiple sources. Websites such as Businesses for Sale, Loop Net Commercial Real Estate, and even direct mail can be useful for finding potential businesses. Sending out multiple letters can be a time consuming process, but it can be very effective. The average response rate for direct mail is one to two percent, so buyers need to be willing to send out at least 250 to 1000 letters in order to get a good response rate.
In conclusion, buying a business is a big decision and it is important to do research before making a purchase. Evaluating the cost of the purchase, the time commitments, and researching potential businesses are all important steps in the process. Additionally, buyers should consider sending out multiple letters in order to increase their chances of finding a good deal. By taking the time to research and understand the process, buyers can make an informed decision and increase their chances of success.
Concept 9: Do Due Diligence On Finances
When it comes to acquiring a business, one of the most important steps is doing due diligence on the finances. A thorough examination of the financials is essential for making an informed decision and ensuring that the business is sound. This involves looking at the company's accounts, tax, debt, and cash flow. It is important to have an understanding of finance and figures and to have a good accountant on board to provide guidance.
It is also important to have a good M&A lawyer on board to ensure that the legal aspects of the purchase are taken care of. Additionally, it is important to build a team of professionals to help with the purchase. This includes accountants, lawyers, and other experts. By having a team of professionals, buyers can ensure that all aspects of the purchase are taken care of.
Finally, it is important to be consistent when sending out letters. Even if initial responses are not positive, buyers should continue to send out letters. This increases the chances of finding a good deal and can lead to unexpected opportunities.
Overall, doing due diligence on the finances is essential for making an informed decision when purchasing a business. By taking the time to research, build a team of professionals, and be consistent in sending out letters, buyers can increase their chances of success.
Concept 10: Take Action To Succeed
In the podcast, John Andrews explains the importance of having a specialized team of M&A attorneys to do the legal due diligence. He also explains that it is important to look for UCC liens and other potential liabilities that may be hidden in the court systems. By taking the time to do the due diligence and research, buyers can find out any potential risks and liabilities that may be associated with the business before they purchase it.
Taking action is essential to success. By taking the time to do the necessary research and due diligence, potential buyers can increase their chances of success. Additionally, it is important to build a team of professionals who can help with the process. This team should include lawyers, accountants, and other professionals who can help with the process. Lastly, it is important to be consistent in sending out letters and other forms of communication to potential buyers. This will help to ensure that all of the necessary information is gathered and that buyers are aware of any potential risks or liabilities that may be associated with the business.
Taking action is essential to success. By taking the time to do the necessary research and due diligence, potential buyers can increase their chances of success. Additionally, it is important to build a team of professionals who can help with the process. This team should include lawyers, accountants, and other professionals who can help with the process. Lastly, it is important to be consistent in sending out letters and other forms of communication to potential buyers. This will help to ensure that all of the necessary information is gathered and that buyers are aware of any potential risks or liabilities that may be associated with the business. Taking action and doing the necessary research can help to ensure that buyers are making an informed decision when purchasing a business.
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