Are you considering purchasing a business in the next coming months? Deciding to buy a company can be an excellent way to get into a brand new market, expanding your expertise and knowledge of a particular industry, or perhaps you are looking to expand upon an existing company by deciding to buy out another supplier or competitor. Whatever the reason may be that has led you to decide to buy a business, there are still a number of factors you will need to take into consideration. Octagon Capital takes a look at the main things you need to remember when purchasing.

Decide on the industry

You need to have complete clarity from the very beginning of the purchasing process about the sector you want to move into. This means that you will then be able to put together specific research regarding the mid-to-long term prospects of the industry before buying a company, as well as being able to look out for local competition as well as any upcoming regulations being implemented. All of which could end up impacting on your final decision to buy a company in this sector.


Target a suitable business

When deciding to approach a company, you should ensure that you have a clear idea on what your budget, location, annual turnover and size will be, finding a company which ticks all the boxes when it comes to these expectations.

Remember that most business will not be actively looking for someone to buy their company out unless advertised. Still, every company has its price and providing that you give a reasonable offer even if unsolicited, it could very well end up convincing the owner to sell.


Open negotiations

It is likely that after a preliminary valuation the first negotiation will be regarding the price. Remember that it is not the case that initial offers are legally binding, but as time progresses and things start to become more finalised, it may be worth getting the help of a professional broker when it comes to negotiations between you and the prospective company, as they can help to write up mutually agreed terms and conditions in a contract.

Prior to completing the sale, it may be worth having your solictor potentially also negotiate an overlap period. This gives you time to become more familiar with the company that you are purchasing before then taking it over.

The Heads of Agreement

The Heads of Agreement can be particularly useful when you have reached the negotiations stage. Whilst not a legally binding document it does make the selling process far easier by condensing the different parts of a sale (for example, responsibilities, payment as well as periods of confidentiality) at a point where it still possible for each party to remove themselves from the negotiations entirely.

The Heads of Agreement can also be particularly helpful in helping to speed up completion dates, by detailing the deadlines and timescale for every aspect of the sale.

Due diligence

This is an important part of the buying process, and employing an account who can provide a more detailed analysis of the target companies’ day-to-day operations, accounts and practices is a vital part of purchasing a business.


The sale and purchase agreement

The sale and purchase agreement is the legally binding terms of purchasing a business, and this is also one of the final stages, where both parties are informed of their legal obligations when it comes to the buying out of a company.


When it comes to paying for the company you have bought, this will be largely depending on the scale and size of the acquisition in question;

  • For a company of a smaller scale, the most frequently used method of paying is straightforwardly paying on completion agreement
  • If it a larger merger (perhaps involving multinational interests) then it could mean that this involves complex finance coming from different sources

Completion of purchasing the company

Remember that it is still possible for a sale to fall through even if you have already reached an agreement when it comes to the cost and terms of the purchase. In order for a sale to reach completion, it will need to have met the following conditions:

  • There has been a transfer of contracts or licences
  • There has been a transfer of leases between both parties
  • Transfers of new or existing VAT registration has been provided
  • All verification of financial statements has been carried out by both parties
  • Money has been transferred