Buy, Don't Build: Why More UK Founders Are Taking Over Existing Businesses
Ask a room of UK entrepreneurs how they started and most will describe a blank page: an idea, a laptop and a first customer. Fewer will tell you they bought a business that was already trading. Yet buying can put you in charge of revenue, staff and customers from the first day, which a start-up can take years to reach.
Buying brings its own risks. You inherit the past along with the profits, and you need to fund a purchase price that can run well beyond your savings. Founders who do it well tend to spend as much effort checking the business as they do raising the money.
Buying can beat starting from scratch
The case for buying rests on time. An established company has a customer base, a supplier list, a brand that people recognise locally and a set of accounts that show what it earns. You can test your assumptions against real numbers before you commit, which no start-up plan can offer. If a seller says a café is busy every weekend, the till records and bank statements should show it.
There is also a survival argument. The early years are where many new ventures run out of cash, and a business with a long trading record has already come through that stage. The owner's departure brings new risks of its own, so the record only tells you part of the story. You still need to know why the seller wants out, and whether the reasons affect the income you plan to rely on.
Start your checks at Companies House
Before any adviser gets involved, you can do a good deal of homework for free. The Companies House service lets you see a company's registered address and date of incorporation, its current and resigned officers, previous company names and insolvency information. It also shows mortgage charge data, which tells you whether a lender already holds security over the company's assets.
Read the filed accounts for the last several years and compare them side by side. Look for steady turnover, any sudden change in reported profit and late filings. A pattern of directors joining and leaving in a short period deserves a question to the seller. So does a charge registered shortly before the sale.
How acquisition deals are usually funded
Most buyers combine more than one source of money. Common elements include personal savings, deferred payments to the seller, investment from partners and borrowing against the business or other property. The mix depends on the size of the deal and on what security you can offer. High street banks can be cautious about lending to a first-time buyer, so challenger banks and specialist commercial lenders often take a closer look at these deals.
Specialist business acquisition finance can cover much of the gap. ABC Finance, a broker with access to hundreds of potential lenders across the market, notes that commercial mortgages can reach 70% of property value, and that some deals can raise 60% to 70% of the going concern value, meaning the business and property combined. Where a buyer has enough equity in the security offered, it can be possible to fund the full purchase price, with upfront costs for legal work and valuations still to cover.
Timescales matter when you agree a completion date with the seller. Secured business loans for a purchase usually take three to six weeks to fund. Commercial mortgages involve more detailed underwriting and can take six to eight weeks or longer. Build that into the heads of terms rather than promising a quick close you cannot meet.
What lenders and advisers will scrutinise
Lenders want to see that the loan is affordable from the business's own earnings. Expect them to ask for two years of business accounts, three months of business bank statements in some cases and six months of personal bank statements. A clear personal credit history helps, because defaults or county court judgments narrow the field of lenders.
A formal due diligence exercise goes further. The ICAEW Corporate Finance Faculty publishes best-practice guidance on commercial due diligence, which describes it as an important part of the investment appraisal process for acquisitions, management buyouts and refinancings. On a smaller deal, that work might cover the market the business serves, how loyal its customers are and whether forecast revenue matches what the accounts show. A chartered accountant can also run financial and tax checks, so you know what liabilities come with the shares.
Planning the first year after completion
Agree a handover period with the seller before you sign. Customers and staff often have a strong tie to the outgoing owner, and a few months of joint working can protect the income you paid for. Some buyers link part of the price to performance after the sale, which keeps the seller invested in a smooth transition.
Set your repayment schedule against cautious trading forecasts, with room for a dip in the first year as you settle in. Once the handover ends and the numbers hold steady, the business you bought becomes a base for your own plans, whether that means new products, a second site or a later acquisition.
