Whether you are thinking about buying an existing SME, or your company is looking into acquiring another business, here’s what to watch out for.

While starting from scratch can be rewarding in its own right, buying an existing business can offer a variety of benefits, from inheriting a loyal customer base and established brand name to drawing on the experience of any existing employees.

If you already run businesses or have been your own boss in the past, you will know it isn’t quite as simple as handing over cash before sitting back to watch profits soar.

But the hard work starts before you have even acquired the business…

Finding the right fit

From tearooms and takeaways to boutique shops and landscape gardeners, the world of SMEs is certainly diverse. You may want to acquire a business to complement your current industry, or your endeavour may be motivated by lifestyle – relocating to run a tea shop by the sea, for example.

But industry and location are not everything. Consider what you want for the capital you have to invest, your earning expectations, the strengths and experience you already have and don’t be afraid to look elsewhere – some businesses are able to be relocated.

Value the business

Once you’ve found the ideal business for sale, the best way to ensure you will pay what it is worth is to use a business transfer agent or broker. Recently, online platforms have sprung up which can help with valuations.

The business is valued on a mixture of factors including performance, history, projections and things like regulatory changes which might impact its running, as well as tangible and intangible assets. You can then make an offer and negotiate terms with the seller.

Carry out due diligence

When your offer has been accepted, a period of time (usually 3-4 weeks) is allowed for you to check the business’ books and records. You should get a realistic picture of the business’s accounts, cashflow and profits, and highlight any issues which might need warranting or guaranteeing. The seller may agree to take the business off the market during this time, known as an exclusivity period, usually in return for a fee. At this stage you should bring an accountant on board to help you assess financial risks, and a solicitor to help with legal checks. If your business purchase includes premises, you may also want a surveyor to take a look.

Complete the sale

After reaching an agreement on the price and terms of the sale, it can be completed, assuming all conditions of the sale are met. Double check your insurance Congratulations! From introducing yourself to existing employees to making decisions about suppliers, there’s plenty to set up during the first few weeks of owning your business. While all aspects of the business will probably have been transferred to you, now is the time to make the business your own and tighten up profitability. Making sure your new business activities and assets are fully insured, and that you are getting the most competitive price for your cover, can have a huge impact on your business finances and security. Lockyers would be happy to assess your new business and provide impartial commercial insurance advice.