Conducting research when buying a business

Once you have found a business you are interested in, the first thing you should do is find out exactly what is for sale, or decide which parts of the business you are interested in buying.

You may agree to purchase the whole business or just its assets, ie its equipment, stock and order book. If you only wish to buy the assets, you will need to determine whether the seller will sell them with or without compensation due to loss of tax benefits, for example from a share sale.

What you need to check when buying a business

Whether you want to make an offer to buy the whole business or to purchase just its assets, there are several important things to check, including:

• Whether the business has full legal ownership of all key assets such as plant, equipment and property. Ask to see documentation that proves all equipment and stock you are purchasing has been fully paid for and is not purely leased by the business - for example, check computer software licenses.
• If it has warranties and guarantees for any major pieces of equipment included in the deal such as computers, photocopiers, vehicles, etc.
• Whether any intellectual property is protected and registered. The Intellectual Property Office or a patent lawyer can help you check.
• What supplier and key customer contracts involve. Make sure you understand what these legally require from the business.

You will then need to decide how much these assets are worth, although to value the business as a whole you will also need to look at documentation such as its profit and loss account.

The above list is not exhaustive. There may be other things you need to check depending on the business you are considering buying.

It is sensible to take advice from professionals with experience of valuing businesses and their assets, such as accountants, lawyers, chartered surveyors, business transfer agents, business brokers and corporate financiers.

How to access company information from Companies House

If the company is registered with Companies House, you can also obtain copies of the company accounts, the annual return and the other key documents filed by your target business using the Companies House WebCHeck service.

The documents can be downloaded from the Companies House website, some at a small fee, helping you assess the value of the business and its assets. Find company information using Companies House WebCHeck.