I would like to thank Robert Thompson of Ward Hadaway, George Moore of Resolution Inc, and Alistair Aird of Baker Tilly for their assistance, and Baker Tilly and Ward Hadaway for the use of sample documents.

The sample documents included are provided only for the purposes of illustration. As with all legal documents, actual agreements should only be drafted by professional advisers sufficiently qualified and experienced to understand all the issues arising from them and from any particular factual situation. You should always seek specific advice for all specific situations and neither the author, the publisher, nor Baker Tilly who have kindly supplied the two due diligence sample documents, or Ward Hadaway who have kindly supplied the legal due diligence document and sample legal agreements, can be responsible to you and accept no responsibility for any loss suffered by anyone as a result of action or omitting to act as a result of the material contained in the sample documents provided here and elsewhere in the book.

When you think about buying a business, what sort of image comes to mind?

Is it late nights in smoke-filled rooms with solicitors struggling through closure meetings? Is it the ruthless corporate raider Gordon Gekko in Wall Street planning the financial strategy? Is it teams of accountants crawling all over the books, doing due diligence in trying to find any hidden problems before it’s too late?

All these images capture the excitement, thrills and suspense of the buying process which, in truth, is one of the riskiest business decisions you may ever make. But they also reflect only a relatively small part of the process of buying a business since doing the deal is only one part of an overall process.

As it is one of the largest financial transactions you’ll ever undertake, in many ways the best way to think about buying a business is like buying a house.

Unless you make a completely impulse purchase, the process that you go through when house hunting (leaving aside any need to sell your existing house) is generally:

• You decide that you want to move.
• Taking into account the price your current house will fetch and how much you are likely to be able to raise as a mortgage, you decide how much you can afford to spend. You might have a preliminary discussion with a lender at this stage just to confirm how much you can borrow but until you have actually found a property that you want to buy, you normally cannot do very much more than this.
• You think about what’s important to you about your next house and therefore what you’re looking for.
• You start to look for houses that match your criteria by studying the adverts and sending for details of those that interest you. Perhaps you will also contact the estate agents who seem to sell the types of houses that you are interested in, to be put on their lists to receive details of appropriate properties when they come up for sale.
• You make arrangements to visit houses that seem to match your criteria for an initial viewing.
• If you decide to make an offer on a property, you negotiate a price with the owner.
• Once your offer has been accepted, you need to arrange your mortgage, engage a solicitor and have a survey done. Your mortgage lender will also arrange their own survey.
• Once you’ve agreed which fixtures and fittings are staying, you exchange contracts and commit to a completion date.
• On the day of completion you receive the keys to your new home and move in. You have to arrange practical matters such as transferring utility bills to your name. Immediately after you move in there is generally quite a lot of upheaval as you unpack all your belongings.
• It’s only really in the weeks and months after the immediate completion that you can really start to relax and enjoy the property and to take steps to make any longer term changes that you are planning such as building a garage or putting up a conservatory.

In many aspects the process of buying a business follows a very similar pattern to that of buying a house outlined above.

Because buying a business is not an event, it is not simply doing the deal, however involved, pressurised and complex that might feel at the time. It is a process that you have to go through to achieve the objective that you want to achieve. You do not buy a business simply to buy a business. You buy a business to become the owner of a successful business that achieves your personal or business goals for you thereafter.

And the process that gets you to that objective is one that has at least five parts:

• 1.The planning phase – deciding to buy and what you want.
• 2.The search phase – finding the business to buy which is the right one to enable you to achieve your objectives.
• 3.The approach and screening phase – narrowing your search down to businesses you want to speak to, opening contact with the owners, making a judgement as to whether you want to buy and making an initial offer.
• 4.Doing the deal – carrying out the detailed checking of the business you’re going to buy so that you know what you are getting, and negotiating the detailed structure of the deal through to completion.
• 5.Making it work afterwards – because as pointed out above, you don’t buy a business just for buying a business’s sake, you buy it to provide you with the future stream of income, the lifestyle or the security that you are seeking for your future or the increased market share you want for your company.

In short, a successful business acquisition is not just a matter of successfully buying a business, but it is also making a success of the business that has been bought.

So the process doesn’t begin with deciding to buy the business and doesn’t end with doing the deal, and unfortunately buying a business is more complicated than simply buying a house.

Yes, the process is similar and yes, some of the checking that you need to do is very similar in nature to the checks that you need to undertake when buying house. Just as you might obtain a survey of a house, so you also need to check the business structure is sound in how it operates.

• Does it have the right plant and machinery?
• Does it have the right systems?

And just as you need a solicitor to check the local planning permissions for things that will affect a property’s value, so you also need to check that there are no significant changes happening or likely in the business’s market that will significantly affect its market position.

While the five-phase process outlined above mirrors the process of buying a house, it’s important to remember that the process of buying a business is inevitably much more complex and stressful than buying a house simply because a business is a more complicated thing than a house.

Remember that a business is not simply bricks and mortar or plant and machinery. It is also people; both employees inside, and relationships with customers and suppliers outside. It is also more abstract things which are equally as important such as knowledge, know-how, reputation and image.

It is also not a static thing like a property but is part of an ever changing business environment in which there are new customers, new suppliers, new competitors, as well as new products and ways of doing business, all of which the business has continually to be anticipating, planning and reacting to successfully to remain on track.

The degree of complexity of the work you have to undertake in respect of any phase will vary with the scale of complexity of the business you’re looking to buy, but whether it’s a corner shop or a large PLC the fundamental principles will be the same. This book is therefore structured around the five phases outlined above.