Finding a Solicitor

Using a solicitor from the outset can save your business a lot of time and money. Its easier to solve legal issues before they become too big and end up costing a fortune to solve. Using a solicitor is a vital step in buying a business or selling a business.

Their services may seem a little expensive but the advice and guidance regarding legal issues in invaluable to ensuring your business runs with as few hitches as possible.

Many business owners find themselves in terrible positions because they opted not to use a solicitor. Its even more important to use the services of a solicitor in the early stages because this is a period where lots of legal implications can arise and ironing out potential problems is easier.

Choosing the right solicitor is also important and is likely to save you future many sleepless nights.

Solicitor Services

There are a number of key areas where professional legal advice can be useful:

  • They are able to assist you with the formation or change of structure of your business and will generally offer advice based on your circumstances. Some of them offer a service where they register a business on your behalf and ensure it complies with all legal requirements.
  • Solicitors can help you understand the terms for leases and licenses.
  • They are also very up to date with industry specific regulations and laws, and can advise you on how to comply with the regulations applicable to your business.
  • Intellectual property – This can be protected with patents and trademarks. The solicitor should be familiar with the procedures and costs involved in obtaining this level of protection.
  • Contract Terms and Service Levels – These can be handled by your solicitor, who should keep you informed of your legal responsibilities to customers and suppliers.
  • Raising finance – A solicitor can help you understand your legal responsibilities when taking on additional funding and highlight the risks if you do not keep up repayments. They can also give guidance for agreeing terms with a lender.
  • Debt Control – They can manage your exposure to bad debt and can advise you on how to go about collecting bad debts.
  • Franchising – You should get your solicitor to check the terms of your franchise agreement and check the small print for any irregularities.
  • Employment Law – Solicitors can keep you informed of current employment law and your responsibilities are to your employees. He will also be able to advise you on what your employees responsibilities to you are.

Finding the right solicitor.

Finding the right solicitor for your business can be a daunting task. Luckily there are some good sources to point you in the right direction.

Solicitors are part of a professional body called The Law Society. The Law Society offers the Lawyers for Your Business scheme which can put you in touch with local solicitors, or provide you with contact details of solicitors who specialise in a specific type of legal activity.

Government organisations like Business Link normally have a list of approved solicitors on file and can supply you with these details if you visit your local branch. Some areas have development agencies that also have approved solicitors on file and they should be more than happy to give a few recommendations.

Your local chambers of commerce should also be able to provide with a list of local solicitors.   Locate your local chamber of commerce

Sometimes you can ask businesses of a similar size to recommend a solicitor. Business contacts should also be able to recommend someone.

Some solicitors are very experiences in dealing with similar businesses to your own. Try to locate these professionals through any trade or professional association you belong to.

Choosing a Solicitor

Most law firms offer a wide range of services and advice which, in most cases, is all youll need. If you need specialist advice not offered by your solicitor, then the Law Society should be able to point you in the right direction.

Check to see if the solicitor has a certificate to practice law. This certificate is issued by the Law Society and ensures the solicitor is qualified and capable of dealing with your legal issues.

Find out from a few solicitors services they offer and what they charge, and then shortlist the ones you prefer before arranging to meet with them.

Arrange an initial meeting with the solicitor whose services you are considering using. Try to make sure you meet with the individual who will be assigned to you. This initial meeting should be free.

Once you explain your business to the solicitor, try to find out if they have dealt with you type of business before. You should ask whether they are happy to take you on as a client based on the services you are looking for. Solicitors can also provide feedback as to whether your intentions for your business are realistic and should be able to give you an idea of how they can help you achieve those intentions.

Make sure the solicitor is willing to provide advice in a clear and easy to understand manner without using confusing legal jargon.

Find out how often they require you to contact them and whether they are able to provide you with a Client-Care letter which sets out their terms and complaints procedure. Its also a good idea to find out what other services they can offer as you grow.

Final Decision

You need to choose which of the solicitors you think is right for your business and contact them to let them know you have chosen to use them. Building a relationship with your new solicitor is vital for insuring they are familiar with your business. This should ensure they handle your legal issues correctly.

Finding an Accountant

The financial records form a vital part of the day to day running of a business. They need to take into account and record all incoming and outgoing payments. Not all companies need to employ an accountant on an ongoing basis but most choose to use one to compile and prepare the needed financial statements for presentation the relevant authorities.

Some businesses employ an in-house accountant and others prefer to pay an external accountant to do the work required. It doesnt really matter which option you choose, but it is recommended that you use an accountant who has “chartered” or “certified” within his/her business name which means he/she is affiliated with a professional body like the Association of Chartered Certified Accountants (ACCA).

Accountant Services

Accountants offer a range of services to help business owners to get on with what they do best, running a business. Accountants are an invaluable resource and they will probably have to be one of your most trusted advisors.

Accounts are a great source of advice for both, start ups and ongoing concerns. Some Accountants will charge you for this service. So be sure to ask beforehand.

Accountants offer bookkeeping services too and sometimes this is great because you have one party dealing with all your financial documents. It is very common for businesses to do their own bookkeeping, but this generally requires some experience in bookkeeping.

VAT registration and returns can be handled by an Accountant who is able to offer piece of mind that records will be accurately compiled and filed in a timely manner with the relevant tax offices.

Accountants also compile tax returns and annual accounts. A good chartered accountant can save you money by using their working knowledge of the rules, regulations and exceptions to reduce the amount you pay in taxes. Annual accounts can also be compiled by an accountant, who will submit them to the relevant parties (e.g. Companies House) by their due date.

Finding an Accountant

It is a good idea to ask friends, family or business contacts to recommend an accountant. This should help you in the right direction. You could also look at some of the directories held by professional bodies:

  • The Association of Accounting Technicians(AAT) 
  • The Institute of Chartered Accountants in England and Wales(ICAEW) 
  • The Association of Chartered Certified Accountants(ACCA) 
  • The Institute of Chartered Accountants of Scotland(ICAS) 
  • The Institute of Chartered Accountants in Ireland(ICAI) 
  • The Chartered Institute of Management Accountants(CIMA) 

Choosing an Accountant

Before choosing an accountant to handle your financial obligations, consider the following:

  • Try to find out if the accountant has experience with companies in your sector. This will benefit you because the account will have a better understanding of what your business is about.
  • Check that the accountant has the necessary qualifications and have a look to see whether the company has the any of the following letters in its name: ACA, FCA, ACCA, FCCA, ACMA or FCMA. These letters imply they belong to one of the industry specific associations, who require accountants to have a few years experience before admitting them as members. This means you can make sure the accountant is qualified and able to deal with accounting issues before taking them on.
  • If you are a small business try to find a smaller accountancy firm, which is likely to understand your business better and provide a more personal service. Larger companies generally require the increased resources of larger accountancy firms.
  • If you can try to meet face to face with a few accountants before choosing one. This gives you a chance to judge whether they seem trustworthy. You could also ask for some references from their current clients and ask them what they think of the accountant and the service he/she provides.

Briefing an Accountant

When you meet an accountant for the first time you need to explain to the accountant what your business does, how it operates and what financial milestones you are aiming to achieve.

Start ups should describe what type of business they are planning to set up, and what their future projected financial position is likely to be. If you have not done these projections then ask the accountant what he can do to help you draft a business plan and reach your objectives.

You should find out if the Accountant has dealt with similar businesses in the past and what services he can offer. If you already have a system in place, ask the accountant if he can do to improve it.

You will also need to find out what he/she charges and what services those charges include. If the fee is charged on an hourly rate then try to get an estimate of what their service is likely to cost your business over the course of the year. Some accountants charge a fixed annual fee which normally includes certain services. Find out what youre getting for your money.

Final Decision

Once youve decided which account to use, they will issue you with a letter of engagement. This is a contract between you and the account, which sets out the

  • Accountants responsibilities
  • Your responsibilities
  • The fees and how they will be charged

Try to keep a steady stream of contact with your accountant and keep him/her up to speed on any new developments.

How to Value a Business for Sale

How much is this business worth? How can I improve its value? These two questions are never far from the minds of business owners or potential business buyers, but surprisingly not too many owners have a clear answer for either.

It’s scary to think that as many as 66% of small to medium sized business owners in the UK have no clear idea of what their business is worth. And a similar number have no clear exit strategy highlighting what they hope to achieve from the sale of their business in the future. It’s by knowing what a business is worth that you can formulate an idea of what you want it to be worth when you decide to sell it. I can only imagine how many people decide to sell their business, retire and live the good life, only to find out that they are not as well off as they thought they were.

If you’re a buyer, then you’re probably more concerned with making sure you don’t pay too much for the business. The value of a business depends on how much profit the potential purchaser can make within a certain period of time and what level of risk is involved, should he/she purchase the business. 

What factors influence the value of a business?

Circumstances of sale

Sometimes owners are forced to sell their businesses because of ill health or for some other unforeseeable reason. This could reduce the value of a business severely because the owner is willing to accept a lower price to ensure a speedy sale. On-going businesses however can afford to wait for a better offer.

An exit strategy can help you plan for the unexpected and generally results in a higher price being achieved.

How tangible are its assets? 

If a business has a large amount of assets like property or machinery, but a low amount profit, it can still be worth a lot because of the assets underpinning its value.

Other companies have relatively few tangibles assets and are valued based on their profit potential rather than their asset value.

Age

Younger companies tend to represent more risk for buyers and usually sell for less than established businesses. An older business is more settled and likely to be able to turn a consistent profit over a long period of time whereas younger companies tend to be more unpredictable.

Sometimes young companies, despite their instability, can still fetch a good price based on their future earnings potential. 

Financial Performance

One of the more obvious factors that influence the valuation of a business, is it’s historic financial performance. Poor results leading up to the sale of your business can have a large impact on what buyers are prepared to pay. In many instances the previous years accounts play the biggest part in a business valuation and any exit strategy you formulate must have this as a core consideration.

A strong financial performance will almost always result in a higher value but bare in mind that the potential buyer will want to be satisfied that the same performance can be repeated if the business is bought.

Valuation Techniques

You should always remember that a business is only worth what someone is prepared to pay for it.

Net Profit Multiples (P/E Ratio) 

Multiples of a business’s net profit are often used to calculate its value. This method is popular for valuing businesses with a low level of physical assets because it relies more on the businesses earning potential. One way to determine what value your profit margin should be multiplied by is too look at what sort of return an investor can get for his money in the market place. Let’s say you do a quick search on the internet and discover that the maximum amount of guaranteed return available to an investor is 10-15% per year. The selling price must reflect a better return on investment for the buyer than what is available to him in the marketplace. So let’s say you decide that 20% return per year is fair. 20% is one fifth of 100%, so therefore you’d multiply your profit after tax by 5 to reach a fair price. But sometimes your industry is growing very rapidly and the fair rate of return can be reduced to account for increased profit in the future.

[Profit after tax] X (100 / Fair rate of return) = Estimated Value

This method requires net profit and an idea of what represent a fair rate of return within your industry. Typical multiples range from 1 to 10 dependent on expected growth, with 5 being about average for small businesses. It is not unusual for companies within the IT industry to use multiples of 25 because of the high growth potential.

Asset Based Valuation

If the business is asset rich, then an asset based valuation is normally preferred. This method of valuing a business relies on knowing the value of a business’s assets and what its outstanding liabilities are.

Assets – Liabilities = Value (Equity)

Remember that a company’s assets according to its books may not reflect what the assets are really worth, so you may need to make sure of their exact value. The form of valuation is commonly applied to manufacturing or property based companies.

Entry Cost Valuation

This form of business valuation looks at what it would cost to create a similar business in the current market. Valuing a business in this manner is quite complex because there are so many factors to take into account. These could include the cost of employing staff, buying equipment, researching products and securing customers. It’s probably a good idea to seek out a valuation agent with specialist knowledge of your industry if you want to use this method.

Industry Accepted Methods

Some industries have pre determined methods of valuing a business. For instance estate agents can be assign a value based on the number of branches they hold. You should consult a valuation agent or business broker who is experienced in selling similar businesses in your industry if you are not sure.

Which ever method you decide to use remember to be realistic, otherwise you could frighten off potential buyers. There may be no demand for your type of business in the market, and selling off the assets could be worth more than discounting it to ensure a quick sale.

A Guide to Buying a Business

Introduction to Buying a Business.

Searching for a business to buy? Thousands of people search business for sale websites every day for an existing business, as opposed to starting one from scratch. This is because buying a business is less risky than starting your own one, but finding the right business amongst thousands of business for sale listings can be tricky. Despite understanding the business sale process, you’ll also need to consider the advantages and disadvantages of buying a business, to determine if it’s the right option for you.

This guide is meant to provide readers, who plan on buying a business, with an overview of what is involved in the buying process. It’s by no means an exhaustive resource but it serves as quick primer to give you an idea of the major elements of the process. So if you’re considering buying a business and you want to learn more, then this guide is for you.

Buying the right business.

The easiest way to decide on the right type of business to buy is to think of what your strengths are, or what your passion is. If you’ve always dreamt about buying a hotel or owning a pub then that’s always a good place to start. 
One suggestion is imagine the sort of business you would have the most fun running. If you’re not having fun then it’s unlikely that you’ll work very hard to make it an outstanding success. 

Another suggestion is to buy a business that plays to your strengths and experience. So for example, if you’re an experienced salesman and you want to buy a business, consider buying a business that requires a large amount of customer facing or telephone selling to play to your strengths. 

Franchises are also becoming more and more popular as an alternative to buying a business. Please see our guide on buying a franchise.

Identify businesses and create a shortlist.

There are many good sources of business for sale listings around these days. The internet has made finding a business easier and websites like ours have allowed sellers to advertise for less, resulting in a comprehensive list of businesses for sale across the country. Websites like Business4Sale.co.uk provide you, as the potential business buyer, with thousands of business for sale listings from almost every business sector and location in the UK and best of all it won’t cost you a penny! 

Another way to find a business to buy is by visiting your local business transfer agents. They would be happy to sit down and establish a set of criteria you need fulfilled before buying a business. They also have a number of businesses on their books and are actively looking for buyers for these businesses. You might find they already have your perfect business for you, but in most cases they are able keep your details and search criteria to notify you in the future of similar businesses for sale. Their services are normally free for buyers but some do levy a small charge for the service. 

When buying a business through a business transfer agent, make sure they are members of The National Association of Estate Agents, or NAEA as it is referred to. This should indicate they conform to a code of conduct and reduces the likelihood of being messed about. 

Traditional sources such as newspapers and trade publications often include a classified section listing businesses for sale. If you’re looking to buy a business in a specific sector then try looking in magazines or publications specific to that sector. The problem with business for sale listings in print media is that they are normally quite costly to place. As a result, there a few listings and the amount of information displayed is minimal. 

It is also very common for business owners to sell their businesses to friends or family, so keep your eyes peeled and your ear to the ground for anything that might suite you. 

Do your research and get more information.

While deciding on businesses to add to your shortlist, do a bit of research and try to answer the following questions:
•    Is this business in a growing, mature or declining industry?
•    How many hours will I need to commit? 
•    Is there a local demand for the product or service?
•    How competitive is the industry?

Once you have shortlisted a few listings that you think might be worth taking a look at, make some enquiries via telephone or through a website like Business4Sale.co.uk. 

Remember, sending an enquiry is free of charge and it gives you a chance to shorten your shortlist even further. You should have a list of relevant questions that you plan to ask the seller. This ensures the seller knows you are serious about buying a business and you’ll find he/she will be more likely to provide you with useful information. 

Some good questions to ask the seller are:
•    How much profit does the business make and does that figure include the owners salary?
•    What is the exact location? 
•    Is the businesses yearly revenue growing or declining? 
•    Is the business dependant on its current owner or can it function without him? 
•    Does the business have any unique products or services that competitors don’t?

Arrange a viewing.

Once you’ve shortened your list the next step would be to attend a viewing of the business. Look at the condition of the assets and make a note of the how enthusiastic the staff are. Staff enthusiasm can tell you a lot about how the business is managed and could provide clues to potential future problems or opportunities. If you are in doubt about something, ask the seller. 

It’s important to remember that sellers often prefer to keep the sale of their business private to prevent poor trading or unrest amongst staff, which can occur when a decision to sell is made. So be discreet but thorough and make a note of key findings. 

Evaluate the business.

Once you’ve found the right business, you’ll need to try to evaluate its worth. There are many factors that will need to be taken into account and below is a list of some examples: 
•    What are similar businesses selling for? 
•    Is it ideally located for good trade? 
•    How dependant is it on the current owner being present? 
•    What position does it hold in the marketplace and are customers familiar with the brand? 
•    What is the value of the businesses fixed assets?

There are three main routes you can take when valuing a business. They are, making use of an accountant, specialist business valuation agent or read as much as you can about the topic and try to come up with an informed guess. Naturally the third is less reliable, but it’s worth noting that a business is only worth what somebody is prepared to pay for it. 

There is no substitute for experience, so try to use professionals like accountants and agents if you can. Don’t be afraid to ask how they came to a particular value and try to verify as much of what they say as possible. 

See our business valuation guide for further reading on how to value a business.

Arranging finance.

Once a value is established, you should look at whether or not you need to raise additional finance. Lenders usually require the current trading statements of the company for a period of 3-6months. If you don’t have these then it’s quite likely you may need to compile a business plan to explain your attempts to forecast the sales of the company you wish to purchase.

High street banks are the most common source of small to medium sized business funding and they will generally provide loans of up to 60% of the businesses value. This leaves you to come up with the remaining 40%.

Many business owners rely on family and friends to help them finance a new business purchase but beware that this does also open the door to serious dispute should the business fail. 

Submitting a formal offer.

Once your finance is in place then it’s time to put in an offer based on what you think the business is worth. Remember to submit all offers in writing regardless of whether you have placed an offer over the phone and ensure that the phrase “subject to contract” is present in all correspondence with the seller. It is advisable to seek professional advice when tabling an offer. 

There are strategies for putting in offers. These include discounting the price you feel the business is worth by between 10- 25% leaving room for negotiations. We advise you ask the professional who conducted the valuation to offer some suggestions or advice. 

Try to negotiate a period in which you can become familiar with the business before taking over completely. This can help to make sure there are no major skeletons in the closet. 

The likelihood that you will have to negotiate on your price is very high, so try to stay below what you feel the business is worth. Remember that this is a business decision and that emotions can negatively affect your ability to make good business decisions.

One other useful tip is to be creative with your offer and negotiations. For example if you can’t get the seller down in price, try get them to allow you to pay the difference at a later date or link it to the businesses performance, giving you a better chance of establishing a positive cash flow before having to part with money.

Undertake Due Diligence

Due diligence is a period negotiated between you and the seller in which you can verify the information given to you about your prospective new business. 

It usually occurs after you have negotiated a price, but can sometimes occur prior to price negotiations, and gives you a chance to check the company’s financial position in relation to the information used to compile your offer. It’s also a period in which you can identify business weaknesses and solutions to strengthen the business you intend to buy. 

Key issues that need to be addressed include: 
•    Financial position
•    Staff terms and conditions
•    Environmental Issues
•    Major Contracts and Orders than need to be fulfilled
•    Management style and whether changes need to be made to improve the operations of the business. 
•    Unsettled litigation

So try to gather as much information as possible from internal sources (company documents) and external sources (Tax office, bank, and landlord) to compile your analysis. 

Prospective buyers for a small businesses usually need between 2 weeks and 1 month to complete a proper analysis of the business, but larger businesses have been known to take two or three months to evaluate. 

If you discover that the seller has not been honest when disclosing information you can either decide to call the whole thing off or start renegotiating the price down accordingly.

During this period the Seller may still choose to continue advertising the business for sale. 

We suggest you get help from a solicitor or accountant, who will be able to assist in most matters relating to this topic.

Completing your purchase.

Once you’re happy with the information you’ve collected and the financial statements of the business you plan to buy have been verified, any leases, contracts, licenses need to be transferred. You will also need to transfer the finance to the seller and complete any remaining paperwork.

You’ll need to sign a business sale contract, which should include a non-compete clause preventing the seller from starting up another business in competition to yours. You are then the proud owner of a new business.