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Business founders/entrepreneurs

Help... buying established business... where do I start? Total new world!

8 replies

rumblingtumtum · 21/07/2020 11:16

I've always been employed by companies.. am in a job I don't enjoy. A local business has come up for sale that I'm really interested in buying. I have no idea how to go about financing it or obtaining details to prove its value etc. It's a property that I could live in. I would need to borrow about 90% of the property / business. How do I go about putting together a plan to show the bank? Is that even how it works?!

Any advice welcome or pointers of where to get a good idiots guide to buying a business and becoming self employed

OP posts:
PAND0RA · 21/07/2020 11:21

Usually the value is based on some multiplier of the EBITDA.

Can I ask - do you have any experience of running this or a similar type of business ?

Have you ever been self employed ?

senua · 21/07/2020 11:28

Speak to an Accountant.
Don't forget that, as well as buying assets, you may also be buying liabilities - Dominic Chappell and BHS pensions springs to mind!

rumblingtumtum · 21/07/2020 12:06

@PAND0RA I have some experience in the sector but none re running a business

OP posts:
rumblingtumtum · 21/07/2020 12:07

It's a small business... no employees other than owner

OP posts:
LonginesPrime · 21/07/2020 13:36

Are they selling the business assets only (premises, etc) or are they selling the shares in the business? The latter is obviously more complex and costly to investigate and its where you're at risk of being lumbered with all sorts of additional liabilities. That said, there can be huge environmental liabilities attached to commercial property purchases too, which would obviously need to be covered by the sale documentation (the lawyer will sort all of this).

I have no idea how to go about financing it or obtaining details to prove its value etc.

Typically, you'd expect to rely on representations from the seller in the sale contract that the accounts are true, complete and accurate, etc and the bank would grant a loan which would be conditional upon receiving a signed copy of the sale contract (which the lawyers would typically draft and negotiate), plus your business plan, etc. The bank would usually expect to review drafts of the contract/business plan, etc and will often request that additional reps are added to the contract, and they might quiz you on the financials in your business plan, as they need to quantify the risk they're taking in lending.

You'd want to have a lawyer and accountant do due diligence on everything available (checking clean title to the property, vehicles, IP, etc in addition to the basics like accounts and charges), then you'd want to include reps in the contract covering all the things you have to rely on the seller's word for (e.g. no-one's suing us, we've not knowingly broken any environmental laws, etc). Often that process will elicit more info (e.g. "no-one's suing us except Joe Bloggs", then you have to sit down and hear all about the Joe Bloggs issue to see whether you/the bank are happy with taking that risk, whether the sale price should be adjusted, etc). The lawyer will advise you on all of that, though.

The good thing about having to get a bank loan is that they will scrutinise the accounts/business plan in a way you wouldn't get if you borrowed the money from, say, a family member. So if the bank is happy to lend, you can be quite confident that you've got something potentially workable if all goes to plan. And if no-one wants to take the risk of lending, it also gives you a helpful indication of viability.

Of course, depending on the type of business, value of the loan and perceived risk, etc, you might find that some of the detail above isn't necessary. And if it's quite a common business, there will be far less work to do in convincing a bank to lend as opposed to an unusual business model that the bank's not familiar with.

I'd definitely add a section to your business plan to account for Covid and Brexit (and anything else that's relevant, like the building of a new shopping centre next door, etc) - if they're not issues because of x, y, z reasons, then I'd explicitly state that, and if they are, you'll need to explain how you intend to mitigate those risks to stay afloat.

I think where I'd start, OP, is by doing my own research on companies house (it's free) and go through their accounts, any charges, who's involved, what other businesses they're directors of, track the chain of ownership up through the shareholder(s) listed in their annual reports (again, all on companies house for free), then google the company names, director names, etc so you can get a flavour of what you're dealing with, how they're regarded, etc. Obviously check out their website and sign up to their email marketing list if they have these. Then if you're still keen, I'd speak to them and ask if they have any info they can provide and take it from there.

rumblingtumtum · 21/07/2020 13:58

@LonginesPrime thank you soooo much that is really helpful. I'll start doing my research. I have self employed friends who will be able to recommend good solicitors and accountants. Plan is for DH to stay in his current job so we will still have his back up income for at least the first couple of years.

OP posts:
LonginesPrime · 21/07/2020 15:31

Good luck, OP - hope it all works out!

topcat2014 · 22/07/2020 20:07

I agree with all of the above. Any transaction with property involves a lot of money, so spending a few K on advice is essential.

Do not be tempted to wing it, only to end up with big VAT bills, or something, down the line.

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