Looking to acquire a business? What to consider

by Kidd Rapinet on October 4, 2024
Business person looking at debt recovery

If you are looking to acquire a new business it goes without saying that you must carry out your due diligence, but how far does this go beyond general business operations and finances?.

Considerations must be given to compliance, the legals such as incorporation, intellectual property, supplier agreements and contracts as well as employee contracts.   It simply isn’t enough to look at the financials and see a profitable business as the deciding factor for purchase.

Carrying out Due Diligence on your prospective business purchase

Business Financial review

Look at financial statements, balance sheets, cash flow statements etc for last 3-5 years.  Look for trends and any discrepancies.  Examine in detail existing debts, liabilities, loans, outstanding taxes etc.

Understand the business’s revenue streams, e.g. are you looking at ongoing new business or does the business extract business for its client base.  Access customer contracts and payment histories so you have a deeper understanding.  Depending on the type of business you may find seasonal  cash flow statements for the past 3-5

Business Legal review

Naturally reviewing legal documents is something Kidd Rapinet’s commercial solicitors can assist with.  This review would look at the company’s incorporation documents, bylaws, board meetings minutes etc.  We would scrutinise major contracts, leases, supplier agreements, and customer contracts.

We look at intellectual property to verify ownership and status, including patents, trademarks and copyrights to ensure no ongoing infringement disputes.

Handling existing employees when taking over a business

It is important to get legal support to examine employment contracts, including terms of employment, compensation, and any non-compete clauses.  If you are looking to retain existing employees under their existing terms or renegotiate contracts, we can assist with termination and severance obligations.

While reviewing contracts you should look at existing benefits and pension schemes to ensure compliance.  We also recommend looking at HR policies, health and safety regulations, anti-discrimination laws and if employee handbooks and contracts align with legal requirements as well as your company’s standards.

Handling the change of business ownership with employees

At a time of change, it is very important to engage with employees to maintain morale and ensure a smooth transition.  If there are to be redundancies or changes to business structure these need to be dealt with sensitively to preserve relationships with employees whose contracts will continue.

Changes to the Business

If you are looking to make changes e.g. introducing new IT systems, processes, company culture etc ensure you take time to truly understand the day to day runnings.  There may be smaller changes that can improve efficiency while reducing overheads before you begin to make capital investments.

Talent Management

Look for employees that will champion new ideas.  Consider incentive programs, career development opportunities that align with your values and expectations for the business.  –

Strategic Business Changes

Take time to assess whether strategic changes are needed – evaluate the company’s position in the market while identifying possible new markets or ways to introduce new product lines to existing clients

Business Insurance Considerations

Business insurance isn’t probably high on the priority list when looking at purchasing a business but you should look into history to see if there have been any claims, and any possible red flags.  Does the insurance include director’s liability insurance, or cyber-attack insurance?.  Determine if existing policies can be transferred or if new policies need to be negotiated.

Structure of the business purchase transaction

How are you looking to make the purchase of your new business?  Decide whether to structure the acquisition as an asset or share purchase as each has different tax implications and risk profiles.

The negotiation process should include warranties, indemnities, covenants etc.  If the premises is leased it is essential to ensure a smooth transition including rent payment on agreed date.

Regulatory Approvals

Your solicitor should work with you to be aware of and comply with any industry-specific regulations that could impact the transaction – this should also involve antitrust and competition laws.

Conclusion

This article touches lightly on some of the key considerations when buying a business.  It does require meticulous planning, however, with the right legal, financial and HR support you can mitigate risks and maximise the value of your new venture.

This article was brought to you by Kidd Rapinet’s commercial solicitors. You can book an appointment with any of the commercial lawyers across our other offices in Aylesbury, Canary Wharf, Farnham, High Wycombe, Maidenhead or Slough, using the form provided.

These materials and content have been prepared for the benefit of their viewers/readers. They are intended for marketing purposes only and are of a general nature and do not constitute legal advice applicable to any particular facts or circumstances. Kidd Rapinet LLP and/or the author(s) accept no duty of care, responsibility or liability for any loss or damage which you or any third party may suffer as a result of any reliance or use by you or them of these marketing materials and content, except to the extent it is not legally possible to exclude such liability. If you require legal advice on your own situation, please contact us so we can discuss how we may assist.

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