Buying a business...

[muneeb84]

Hi, im new here and looking for a bit of advice really!

Im looking into buying a business as im sick of my job to be honest! I have found a couple of businesses which I like but wanted to know what kind of things i need to be asking the seller and what I need to be wary of.
Also if the business is a Limited company at the moment and the seller says that he's selling just the business and not the Limited company, and the Limited company will be closed down after the business is sold, what could be the reason's for that and why would the seller not just sell the business as a Limited company?

Thanks

 

[Rhodes100]

If you google "buying a business due diligence" there is plenty of advice on the internet.

I would suggest that you ask the vendor why he is selling the assets of the business not the limited company. It may be due to personal tax reasons, or even ignorance.

What you should be doing is thinking about what the best structure for trading would be for you. If a limited company has been trading for 30 years and the business is sold not as a limited company, technically it would be a new business. Buy the shares of the limited company and you still have a business that has been trading for 30 years.

 

[deniser]

Selling the limited company is much more complicated in terms of inherited liabilities and the warranties which have to be given by the seller so much better to buy the assets alone anyway.

 

[Rhodes100]

Just because it might be less complicated buying the assets it doesnt make it the right thing to do though for the buyer.

 

[jhardy2008]

I agree with Rhodes100 answer

 

[deniser]

Reasons why the Seller would prefer an asset sale rather than share sale:

1. seller is a receiver
2. only part of the company is being sold
3. some of the shareholders disagree
4. risk of warranty claims
5. more attractive to buyer ie. easier to sell

Reasons why the seller would prefer a share sale:

1. better tax treatment
2. Clean break - all liabilities pass to buyer
3. Simpler transaction in that only the shares need to be sold v. all assets being identified and sold separately
4. Quicker for reasons in 3.
5. Less disruption to business

As a buyer I would much rather have the assets and start off with a clean slate rather than worry about which liabilities as yet undiscovered might be lurking which I would have to sue the seller for under the warranties provisions.

 

[muneeb84]

Thanks for ur responses, very helpful

The business im looking to buy is currently a Limited company and the seller has said he is selling just the website and name and not the Limited company and the Limited company will be closed.

As this is the first (hopefully of many) business Im looking to buy, I want to make sure Im doing everything right and not throwing money away!

 

[KateCB]

I did a similar thing - I sold the site and the domain name and the trading name for that site, however it was a company which was ' a member of' my Limited company group, as there are several 'trading names/websites which benefit (or not depending on how you look at it!) from one VAT registration etc, so it could be that simple -

Then again, given that he is saying that the LTD will be closed after the sale of the business, I'm not sure why he wouldn't include that (apart from Denisers brilliant list!) as I would have thought that selling the LTD part would actually increase its worth (after due diligence)?

Interesting one!

 

[muneeb84]

I did a similar thing - I sold the site and the domain name and the trading name for that site, however it was a company which was ' a member of' my Limited company group, as there are several 'trading names/websites which benefit (or not depending on how you look at it!) from one VAT registration etc, so it could be that simple -

Then again, given that he is saying that the LTD will be closed after the sale of the business, I'm not sure why he wouldn't include that (apart from Denisers brilliant list!) as I would have thought that selling the LTD part would actually increase its worth (after due diligence)?

Interesting one!

Thats exactly what I thought, the LTD part should add value to the business and if he's closing it anyway, what could be the reason for not including it? Also, there is only 1 business trading under the LTD company, so he's not selling just one brand from under a group!

 

[Poppy Design]

We were considering selling our childrens supplies business/website which is a Ltd company earlier this year.
My accountant actually advised us to close the Ltd company and just sell the website and stock as many start ups would be trading as a sole trader initially.

In the end we did not go ahead and have kept the business with the hope of finding the time! and resources to get it going again.

So it may not be that odd what he is proposing - I guess it depends on the business type and turnover etc - ours was only tiny!

 

[muneeb84]

We were considering selling our childrens supplies business/website which is a Ltd company earlier this year.
My accountant actually advised us to close the Ltd company and just sell the website and stock as many start ups would be trading as a sole trader initially.

In the end we did not go ahead and have kept the business with the hope of finding the time! and resources to get it going again.

So it may not be that odd what he is proposing - I guess it depends on the business type and turnover etc - ours was only tiny!

Ah ok, but I dont understand the reasoning behind it as a LTD company is surely better for both the owner and the customers?!?

The business im looking at is a small business aswell as its my first business im looking tO start

 

[GeorgeStrait]

Very few benefits of being a small business and Ltd these days. Makes no difference to the customer.

A benefit would be that the company would have trade accounts already in place and you wouldn't have to open new accountants and pay pro-former for the first few orders.

If you buying the assets, name, "goodwill" etc then the Ltd bit really isn't an issue, and as others have said your probably better off without it.

 

[muneeb84]

Iv spoken to the seller and he's said the reason for not selling the LTD part is because there r other businesses registered under it.

I asked to see the accounts for the business but he said that they are still with the accountant and may take some time before he gets them! Does that sound right? Should he not have the accounts by now? Is there any other way to verify the business' turnover / profit/loss?

 

[Jenni384]

I wouldn't worry that the accounts are still not finalised - a business sale can still get going without them, though I would expect to be able to see management accounts for the current year to the last month. You will of course want final accounts and recent management accounts eventually. If you are waiting on the last years accounts and the year end was more than 2 or 3 months ago, this is not so great. However I would look to ascribe this to delays in the business owner getting the books to the accountant, or the accountant not having had time to finish them yet, as opposed to anything untoward. However, it may give some indication as to the organisation of the seller if they are tardy in getting their accounts to the accountant, especially in light of the fact that they are trying to sell!

As to selling the assets, or the Ltd Co itself, Deniser has given a good overview. If the Ltd currently running the business has other income streams that are not being sold, this would make sense in the way they are doing it, however, if the seller plans on closing the company after the sale, what is happening to the other income streams?

I'm not convinced with the logic that new startups are likely to be sole traders - while this can be true, if someone has the opportunity to buy an existing Ltd with years of history, this might be more advantageous than buying a going concern and starting building a brand new credit rating and history under the new owner. The main advantage of a sole trader (aside from accounting simplicity) is that losses can be carried back against previous taxed income for a tax refund. If this is not possible, then taking on the existing Ltd might be advantageous - with the obvious caveat of taking on any previous liabilities - due diligence is essential.

Edit: if the Ltd has other income streams, the accounts you see need to clearly show the income and costs associated with the part you are buying!

 

[Richie N]

Also, the limited company could have guarantees with the bank, obviously with personal guarantees it's down to the director to settle these with the sale of the business.

 

[Jenni384]

Also, the limited company could have guarantees with the bank, obviously with personal guarantees it's down to the director to settle these with the sale of the business.

Yes, finding out anything like this is all part of the due diligence process.

If you are buying a business, then a solicitor is essential to make sure you don't get caught out with anything, and a good solicitor will know all of the things to check for.

 

[Richie N]

Yes, finding out anything like this is all part of the due diligence process.

If you are buying a business, then a solicitor is essential to make sure you don't get caught out with anything, and a good solicitor will know all of the things to check for.

Indeed, we are in the process of selling our business and it's not an easy process if the solicitor's aren't on the ball with certain matters.

 

[muneeb84]

Fair enough - im not 100% about it so thinking of looking for something else or starting from scratch!
Any ideas on what industry would be good and what business name I could use? I dont mind which area/industry i do as long as its successful

 

[ian-d]

Iv spoken to the seller and he's said the reason for not selling the LTD part is because there r other businesses registered under it.

That would make sense and be a more acceptable reason for not selling the ltd company with the website, however, you initially said he was closing the ltd company which doesn't seem the case now. Sounds a little messy to me.

 

[Merchant UK]

Iv spoken to the seller and he's said the reason for not selling the LTD part is because there r other businesses registered under it.

I asked to see the accounts for the business but he said that they are still with the accountant and may take some time before he gets them! Does that sound right? Should he not have the accounts by now? Is there any other way to verify the business' turnover / profit/loss?

Before you hand over any payment you need to see the accounts!!! You simply don't buy a business especially one which the guy is not included the limited company without seeing accounts.

Its like Buying a house without seeing it or getting a survey done.

Ignore the crap about the accountant having the books, if i was selling i could go to my accountant and get the accounts for you in a matter of hours, thats a piss poor excuse i'm afriad.

There is one issue that sticks to the back of my mind and thats, Is the seller the right Director or the Highest shareholder of the business to have authority to sell it?? The reason he don't want you to have the limited Company name may be that the other shareholders may not want to sell, or he may even not have the authority to sell, you really do need to do your homework here...

1. Do a credit Search on the limited company
2. Buy online their last years accounts, either from companies house or do a google
3. Ask him although his accountant has his accounts you want an accountants report on how well or badly the company has been going and where its heading
4. Ask him to prove his income, by means of bank statements, If he says the account has them then ask him to get copies from the bank which he can do from a machine inside the bank for free and instantly

Never give out money or by a business from what he's told you already, do your checks and save ££££'s

personally if it was me and the guy was making it akward to answer my questions or to prove to me basic income and outgoings i wouldn't touch him with a bargepole.

Rember the 7 P's ~ Prior Prevention & Planning Prevents Piss Poor Performance !!
Good Luck

 

[Chris Ashdown]

Merchant is giving you very good advice, nobody would be selling a company without having last few years accounts prepared or at least available in a couple of weeks from start of contact

Don't trust anything in business, is hard to accept, but often needed

 

[Merchant UK]

Thanks Chris,

For the sake of £18 you can get this info, They also do a free cut down report which may give you just the basics, but dependant on how good or how bad the free basic report it, will make you decide if you want to spend the £18 and get a Detailed report http://ukdata.com/company/search

• Statutory information
  
  - Name, address, registration date, company number, status and accounts filed.
• Risk information
  
  - Current and previous risk scores, credit limit, contract limit, CCJ summary.
• Ownership
  
  - Holding companies, parent companies, subsidiaries, share capital, shareholders, mortgages, charges and satisfactions.
• Profit & Loss account
  
  - Extracts from the last five years of Accounts filed at Companies House.
• Balance sheet
  
  - Five years balance sheet items, cash flow statement.
• Cash flow ratios
  
  - Lists the main liquidity, performance, leverage and gearing ratios.
• Accounts notes
  
  - Exports, audit fees, intermediate assets, bank overdraft, and finance due to directors and group.
• Growth rates
  
  - Percentage growth measurements for one, two, three, and four year periods.
• Filing history from Companies House
  
  - Name changes, mortgage documents and other filings.
• Officers
  
  - Current and previous directors and secretaries, including name, address and date of birth and any other directorships along with relevant risk scores.

Not only will that show you just how well the company is doing but it'll also tell you about any other directors, credit scores and tranding names etc...

take a peek here to get your free report http://ukdata.com/company/search

or here to get the more detailed http://ukdata.com/help/prices

a sample report is here http://ukdata.com/help/samples/credit-report

Enjoy

 

[muneeb84]

Before you hand over any payment you need to see the accounts!!! You simply don't buy a business especially one which the guy is not included the limited company without seeing accounts.

Its like Buying a house without seeing it or getting a survey done.

Ignore the crap about the accountant having the books, if i was selling i could go to my accountant and get the accounts for you in a matter of hours, thats a piss poor excuse i'm afriad.

There is one issue that sticks to the back of my mind and thats, Is the seller the right Director or the Highest shareholder of the business to have authority to sell it?? The reason he don't want you to have the limited Company name may be that the other shareholders may not want to sell, or he may even not have the authority to sell, you really do need to do your homework here...

1. Do a credit Search on the limited company
2. Buy online their last years accounts, either from companies house or do a google
3. Ask him although his accountant has his accounts you want an accountants report on how well or badly the company has been going and where its heading
4. Ask him to prove his income, by means of bank statements, If he says the account has them then ask him to get copies from the bank which he can do from a machine inside the bank for free and instantly

Never give out money or by a business from what he's told you already, do your checks and save ££££'s

personally if it was me and the guy was making it akward to answer my questions or to prove to me basic income and outgoings i wouldn't touch him with a bargepole.

Rember the 7 P's ~ Prior Prevention & Planning Prevents Piss Poor Performance !!
Good Luck

Thanks for this Merchant

I have asked him everything possible and Im not getting anywhere to be honest with the accounts etc - he said he can show me the invoices, but anyone could make up the invoices for the sake of it.

I have checked through companies house who the director of the company is and its a different name and address, so I asked him who it was and he said its his brother. He said his brother owns the company but he owns the websites and thats what he is selling!

I think im going to leave it and move on and try and find something else.

I need / want to either buy or start my own business ASAP and could do with some help of ideas... dont mind which industry / product I do, as long as I can do it online - website / eBay / Amazon

 

[Merchant UK]

Good Luck, Glad you didn't waste any money on this loser

 

[Rhodes100]

I think this guy might have trouble selling this business, if he does not have seperate accounts for this business.

It is a perfect example of a seller of a business not grooming or preparing his business for sale before offering it to the market. He probably, incorrectly thinks that as it is a great business that everyone will recognise it and want to buy it with no questions asked.

If you want to sell a business, and everyone in business will at some time have to exit their business, you need to be preparing for that sale years in advance. In this case one thing this guy could have dont would have been to seperate his accounts.

 

[lukesykes]

I am also new in business and want to establish a small business as soon as possible. There are so many factors to keep in mind before starting any business and also lots of risk within process of business. So please guide me, welcome your suggestions.

 

[Chris Ashdown]

Thanks for this Merchant


I need / want to either buy or start my own business ASAP and could do with some help of ideas... dont mind which industry / product I do, as long as I can do it online - website / eBay / Amazon

With e-shops you are going into a area thats always got far more competition than brick and mortar shops, so you need to be a specialist in some area at least to start with

If you have a hobby thats a good area to start with as you know the subject , but whatever area you go for think small rather than large and by that I mean, you could never compete with large plc's selling cars, you could not even compete selling Major parts like engines unless you were very lucky, but you could easily be the best in the country selling historic and modern spark plugs, what I am trying to say if if you find a small niche area then you have far less competition and more chance of success and also lower stock holding

Buy a shop in a box at about less than £400 which you can set up yourself without any help and find a product to sell, Hosting, PSP etc will take another £500 so you can start with about £1000 plus stock, or start with ebay and grow untill you feel a shop is the next item

 

[Chris Ashdown]

Please not companies house records will not show accounts for most small companies just the basic ownership and ccj's directors etc

 

[muneeb84]

Iv found anothrr business of interest to me which is already setup and running. It is currently a LTD company and the seller says it would be in my interest to run it as a Sole Trader due to the amount of paperwork and hassle involved in running it as a LTD company. So if I bought the domain and website from him, would that be ok? Also, would I need to register the company again as a Sole Trader? And would I need to register it again for VAT?

Thanks

 

[Merchant UK]

Iv found anothrr business of interest to me which is already setup and running. It is currently a LTD company and the seller says it would be in my interest to run it as a Sole Trader due to the amount of paperwork and hassle involved in running it as a LTD company. So if I bought the domain and website from him, would that be ok? Also, would I need to register the company again as a Sole Trader? And would I need to register it again for VAT?

Thanks

Not sure where your getting all these dodgy businesses from, but be very careful, just buying a website and domain, if the seller is a fully fledged Limited company. who recommends that you run it as a sole trader??? Very Strange???

Could it be that they do not want you to see the accounts, perhaps he is not the right person to be selling these things, either he's selling a business, Lock Stock and Barrel or a Website and Domain???

Why don't you set yourself up with a new domain, and website and save your money to get the website Done and SEO, as opposed to buying a second hand site under some dodgy circumstances, without seeing any accounts???

What sort of money are we thinking of spending on this Website and domain??? You could do better and do it yourself

 

[muneeb84]

Not sure where your getting all these dodgy businesses from, but be very careful, just buying a website and domain, if the seller is a fully fledged Limited company. who recommends that you run it as a sole trader??? Very Strange???

Could it be that they do not want you to see the accounts, perhaps he is not the right person to be selling these things, either he's selling a business, Lock Stock and Barrel or a Website and Domain???

Why don't you set yourself up with a new domain, and website and save your money to get the website Done and SEO, as opposed to buying a second hand site under some dodgy circumstances, without seeing any accounts???

What sort of money are we thinking of spending on this Website and domain??? You could do better and do it yourself

The reason Im more interested in buying an existing business already running is because the business has already got their name within the industry and a customer base along with suppliers - whatever I do will be my 1st business and I dont want to be risking too much by starting fresh... what do u think?

He said the reason he doesnt want to sell the Ltd company is due to the amount of legal fees and extra costs it involves - but he is willing to let me have it with the Ltd company if I pay his asking price rather than the offer iv given him...

 

[Merchant UK]

will he then close the limited company or still keep it?? Will he let you look at the accounts to show how well he's been trading?? these are all questions you need answers to..

There have been cases of Limited companies off loading products, services which are not cost effective to unsuspecting buyers who have been promised great money making ideas but end up with something that don't quite meet the mark.

So yet another company who says they won't sell the Limited business, That way they won't need to show you the accounts or how well they've traded. All they had to do was to make you a director, and then resign themselves, Its not expensive to transfer a business to a new director, The reluctance for them to do this shows that they may be hiding something. Is this person the right person to be selling Company Assets, are they a Majority Director, or have all the other directors agreed?? Do you have anything in writing??? Have you done a credit check (£18)????

He says he'll let you have the Ltd Company if you pay the "Fees" well i can't see that where talking £100's here??? What fee's exactly???



You still havn't said anything about what sort of money we're talking about here so i'll set it out for you

1. Upto £500 - Do your Own Homework, The more questions you ask the better informed choices you'll make.
2. Upto £5000 - You really need to see at least 2 to 3 years worth of accounts, if you don't inderstand them, take them to an accountant. Check how they have valued their product or business, again seek advice, Business owners tend to overvalue their businesses, ask them how they have arrived at that valuation. Do Credit checks on the ltd company, see what you'll be getting
3. Upto £10,000+ - Get an accountant, Solicitor to arrange the sale for you, Make sure your getting whats been offered, if your going to spend this type of money then its best you get all the help you can especially since its your first business.

 

[Chris Ashdown]

Dont be paniced into buying something you will regret later, nobody buys a company or its assents without seeing last few years accounts, they were required to be produced by owner if either a limited company or a self employed person, these give full info on sales, purchases, assets etc and normally produced by accountant

Whatever else you do NEVER buy without seeing these accounts and if not available walk away as they have only one reason to not show them, they are hiding something. even a LTD with other business in a group will normally have a seperate section for the web site / shop

Good luck, try looking at the agents who sell sites etc, they may charge a bit more but give you a better chance of getting a good company.

You will also have quite a lot to arrange yourself, delivery company, merchant account, bank account etc. Try and get them to write down exactly what you are getting and then post it on here without the names etc

Do a Google search for the name of the company

 

[KeithGreen]

I will often (in fact usually) advise a client to sell the Ltd Co. The tax benefits are far better for the Seller than selling the goodwill and assets. The legal costs etc. are higher but generally outweigh the tax costs.

For the Buyer however if he does just buy goodwill and assets he has the benefit of a clean sheet with no transferred liabilities.

However the customer and supplier accounts may all be in the name of the Ltd Co. and these would have to be newly set up by the Buyer. If there are premises these may also be in the name of the Ltd Co meaning the lease has to be re-assigned to the Buyer (or his NewCo). None of this is insurmountable but all situations need to be judged on the facts and the practicalities of any transfer.

Most buyers expect to be buying the Ltd Co. and to go through due diligence and the legal and accounting work involved. Again though this may be disproportionate to the sale of a small Ltd Co. costing just a few thousands or tens of thousands of pounds.

There is lots of useful advice being given here to the OP but he perhaps needs the services of a local adviser rather than bouncing things around on a forum.

 

[bobogifts1989]

Ask for the demand of products which you are interested in. Why do you think limited company will close down after sold out?

 

[Philip Hoyle]

I can't see why the seller will have a lot more fees if he sells the limited company. It's the buyer who has the due diligence to pay for.

The seller will actually pay less tax if he sells the company as he should pay only 10% entreprenneurs CGT on the sale of his shares, which compares with upto 40% if the company sells the goodwill etc - paying corporation tax at 20% on the profit, and then pays a dividend to him which may be another 25% if he's a higher rate taxpayer. If he closes down his own company, then he'll have fees to pay anyway to wind it up.

Seems the wrong way round to me. I'd be saying the sale of the shares/company should attract a lower price to reflect the risk and costs taken on by the buyer and the tax benefits to the seller.

 

[ramjibaral]

I Would Like To Requrst You That We Have Just Registered Pvt Ltd Company To Do Resturant Business . Our Registered Co Name Is Rmd(uk) Limited. We Just Want To Different Trading Name Like The Royal Spice, Is It Possible To Keep This Name?could You Pls Reply Me.
Thank You