So far in our Buying a Business series we've focussed on:
In our final part we're looking at: The finances – why is the business up for sale and are the accounts accurate?
1. Why is the business up for sale?
For those on the high street, it’s important to consider local issues such as new road layouts/bus stop locations which could affect footfall. Is there any new competition? What’s the recent trading history like and what reasons has the seller given you for wanting to sell?
Be realistic about the chances of improving a struggling business. You may want to ask specific questions of the seller about what initiatives they have tried but it’s unlikely they’ll admit any defeats to you! Therefore make friends with other local businesses and ask around for local knowledge.
2. Are the accounts accurate?
If you are new to running a business, have you had the balance sheet or accounts looked over by your accountant? (If you don’t have an accountant, you should think about getting one to help you with your payroll and tax obligations.) Read through the accounts:
- Do the sums add up - is it a good investment or business?
- Are there any items missing which you would expect to see?
- Are there any items included which you need more information about?
- Have there been any one off payments made into the business which mean that it looks to be more profitable than it is?
- Can you afford the monthly outgoings? Don’t forget to ask about one-off annual payments (perhaps for the lease insurance) which may not show on the accounts you have been given.
Before completion you need to consider how you will deal with expenditure incurred by the seller prior to completion but only due afterwards. If you don’t, you may end up with suppliers withholding deliveries until payment by the seller, despite the fact that they know the debt isn’t owed by you.
Before we go, some other things to consider:
- Budget setting: have you been realistic and allowed room for ‘unexpected’ expenses? Are you realistic in whether you will be able to take a wage in the first six months or a year?
- Estate planning: have you considered what would happen to the business if you become unwell or die? Have you added the business to your Will or if you haven’t got one, thought about getting one? There are also Corporate Wills which can be prepared for companies which may be a better option for you if there is more than one owner.
Emsleys Solicitors’ Commercial team can help with all aspects of selling or buying a business. Contact Angela Macready on 0113 201 4900 for a free initial consultation and no obligation quote.
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