Buying an existing business.

MCD1984

Evening all. Hope everyone is well. Does anyone out there have any experience with buying existing up and running businesses please? I've been toying with setting up my own business but have come across a couple of up and running businesses and am toying with the idea of this instead. I have loads of questions from funding and the overall process but my first question is it generally considered a good idea to buy an existing business or should I go in wary? If so what should I be checking for. Thanks very much in advance.

Kind regards.

J_B

Suppose it depends on what the business is! 

MCD1984

Possibly would help.... It's a Automotive repair garage J_B

MattMattMattUK

MCD1984 said:

Possibly would help.... It's a Automotive repair garage J_B

Too many questions to answer on here, but the key ones will be.
Structure, Ltd vs sole trader.
If a Ltd do full due diligence on assets and liabilities.
Equipment, is it worth what is being charged?
How integral to the business is the owner? If they are the key with ongoing customer relationships and word of mouth the business will be worth considerably less.
Staff. If there are any, on what basis are they employed, I there a risk they would set up on their own if the owner leaves, taking custome with them.
Are you capable of running the business and providing the services?

motorguy

MattMattMattUK said:

MCD1984 said:

Possibly would help.... It's a Automotive repair garage J_B

Too many questions to answer on here, but the key ones will be.
Structure, Ltd vs sole trader.
If a Ltd do full due diligence on assets and liabilities.
Equipment, is it worth what is being charged?
How integral to the business is the owner? If they are the key with ongoing customer relationships and word of mouth the business will be worth considerably less.
Staff. If there are any, on what basis are they employed, I there a risk they would set up on their own if the owner leaves, taking custome with them.
Are you capable of running the business and providing the services?

I would strongly recommend setting up another limited company and buying "the business" off the original one.

Taking over an existing ltd co makes you liable for any historic tax issues, investigations, customer liability claims, etc.

MattMattMattUK

motorguy said:

MattMattMattUK said:

MCD1984 said:

Possibly would help.... It's a Automotive repair garage J_B

Too many questions to answer on here, but the key ones will be.
Structure, Ltd vs sole trader.
If a Ltd do full due diligence on assets and liabilities.
Equipment, is it worth what is being charged?
How integral to the business is the owner? If they are the key with ongoing customer relationships and word of mouth the business will be worth considerably less.
Staff. If there are any, on what basis are they employed, I there a risk they would set up on their own if the owner leaves, taking custome with them.
Are you capable of running the business and providing the services?

I would strongly recommend setting up another limited company and buying "the business" off the original one.

Taking over an existing ltd co makes you liable for any historic tax issues, investigations, customer liability claims, etc.

Yep, thinking about this I agree. The only acquisitions I have been involved with have been larger companies where the Ltd was bought, then assets, contracts, employees transferred over, over a period of time, however for this kind of business you are totally right, a straight up purchase of goodwill and assets makes far more sense.

martindow

Another possible issue is TUPE

https://www.gov.uk/transfers-takeovers

You may be obliged to keep on employees of the business.  This could be fine, butr you might wish to choose your own employees or start with a smaller number of staff.

Thrugelmir

MCD1984 said:

 I have loads of questions from funding and the overall process but my first question is it generally considered a good idea to buy an existing business or should I go in wary?

Be prepared to perform very thorough due diligence. In principle there's no reason not to. As starting from absolutely nothing is a long hard road. 

Pennywise

For a garage, re the equipment, you need to check that none is on lease/hire. You also need to check age and condition as plant (such as power ramps, welding equipment, etc) can look OK, but can be on it's last legs.  Also get a full inventory of tools, such as the spanner/socket sets, etc - you need to check that what you're buying is complete enough for all the different types of vehicle you'll be working on - special sockets/spanners for particular vehicles are very expensive and easy for the outgoing owner to take a few bags with them leaving you without the tools to do the work and having to buy new.

MCD1984

Evening all. Thanks very much for your replies. Lots of food for thought.

@MattMattMattUK The business is local to me and currently set up as a limited company. There are 2 members of staff in place and I'm unsure of their contract terms (very early days). One of my main concerns is the loyalty to the current owner. His name is literally above the door.... And I'd like to think I'm capable of running the business. I'm a senior tech currently with 20 years experience and pretty money savvy. Just the purchase of a business is completely new territory for me.

@motorguy Noted and thanks very much for bringing this to my attention.

@martindow This was something I wasn't aware of so thankyou. One of the lads has been there for 12 years and I know he is pretty competent. The other member of staff I'm not so sure on so will certainly bear this in mind.

@Thrugelmir Perfect thankyou. I love the idea of hitting the ground running but understand I need to be wary and carry out my due diligence as alot of things can be hidden within a limited company.

@Pennywise I'm currently a senior tech myself so have plenty of tools but will ofcourse check the condition and quantity of any special tools. The garage also has a test lane and I know there can be complications around this when switching business owners. As for ramps and more expensive equipment this is definitely something I'm going to have a deeper dive in.

Again thanks all and I plan on going to see the Business owner tomorrow evening for a chat so will keep everyone updated.

lincroft1710

Any chance of you finding existing customers of the business and asking them if the business changed hands would they still patronise it