Looking To Know How To Buy A Business?
Buying a business can be one of the quickest ways to step into ownership with revenue already flowing. Customers exist. Staff are in place. Systems are running. Compared to starting from scratch, you’re stepping into something with history and traction already there.
But buying a business isn’t just about agreeing a price and shaking hands. The success of the deal usually comes down to structure, funding, and discipline.
If you’re considering an acquisition, here’s a practical guide on how to buy a business properly – and avoid the common mistakes that catch many people out.
Why Buy Instead of Starting from scratch?
Starting a business from zero is high risk. You’re testing a product, building a customer base, and hoping the model works.
When you buy an existing business, you’re acquiring:
- Proven revenue
- Trading history
- Existing clients
- Supplier relationships
- Operational processes
- Brand recognition
That doesn’t eliminate risk – but it reduces uncertainty.
Lenders also prefer established cash flow over projections, which can make funding more accessible when structured correctly.
Step 1: Be Clear on What You’re Looking For
Before reviewing listings or speaking to brokers, clarify your objectives.
Are you:
- Buying for income?
- Looking to scale and exit in 5-7 years?
- Adding a bolt-on to an existing company?
- Completing a management buyout?
Different goals require different deal structures.
For example, a stable service business with recurring revenue is generally easier to finance than a project-based business with fluctuating turnover.
Clarity here will shape everything – from valuation to funding.
Step 2: Understand How Businesses Are Valued
Most small and mid-sized UK businesses are valued using a multiple of EBITDA (earnings before interest, tax, depreciation and amortisation).
Typical ranges look like this:
- Smaller owner-managed businesses: 2-3x EBITDA
- Established SMEs with systems and management: 3-5x
So, if a company generates £300,000 EBITDA and sells at 3x, that implies a £900,000 valuation.
But valuation is not just about profit.
You need to assess:
- Is revenue consistent year-on-year?
- Are profits adjusted for one-off costs?
- Is there heavy reliance on one customer?
- Is the owner heavily involved in day-to-day operations?
- Are wages artificially low?
Normalising accounts is crucial. A single strong year doesn’t justify an inflated multiple.
Step 3: Carry Out Proper Due Diligence
This is where you protect yourself.
At minimum, review:
- Three years of filed accounts
- Current management accounts
- Bank statements
- Aged debtor and creditor reports
- Existing funding agreements
- Lease agreements
- Staff contracts
- Tax compliance
If the company uses invoice finance, it’s worth understanding how it works. If you’re unsure, reviewing the basics of what is invoice finance can help you understand how cash flow is being supported and what security may already be in place.
You should know:
- Whether there is a debenture
- If personal guarantees are in place
- What the facility limits are
- How much usable headroom exists
Cash flow pressure after completion is one of the most common causes of post-acquisition stress.
Step 4: Decide on the Deal Structure
There are several ways to buy a business:
Asset Purchase
You buy selected assets and goodwill, not the limited company itself.
Share Purchase
You buy the shares and take ownership of the entire company, including liabilities.
Management Buyout (MBO)
The existing management team acquires the business.
Vendor Finance
The seller leaves part of the purchase price in the business and is repaid over time.
Many deals are a blend of funding sources rather than one single method.
Choosing the right structure can protect you from hidden liabilities and reduce upfront capital requirements.
Step 5: How to Fund the Purchase
Funding is usually the biggest hurdle.
Most acquisitions are funded through a mix of:
- Buyer equity
- Senior debt
- Vendor finance
- Working capital facilities
Traditional lenders may fund 50-70% of the purchase price if the business generates stable cash flow.
But banks will assess:
- Profit sustainability
- Debt service coverage
- Sector stability
- Your experience
- Credit profile
Personal guarantees are common, particularly for smaller transactions.
Using Cash Flow to Support the Deal
One of the most overlooked aspects of buying a business is working capital.
If a company invoices customers on 30 or 60 day terms, that money is tied up.
Unlocking that cash flow can strengthen your position immediately after completion.
Understanding options like best invoice finance or reviewing invoice finance providers can help improve liquidity and reduce reliance on overdrafts.
In some cases, selective options such as single invoice discounting may offer flexibility if you don’t want a full facility.
The point isn’t to overload the business with debt – it’s to structure funding around how cash flows.
Bridging Loans in Time-Sensitive Deals
If property forms part of the transaction or speed is critical, short-term funding can play a role.
If you’re unfamiliar with what is a bridging loan, it’s a short-term facility designed to “bridge” a funding gap – often between purchase and refinance.
Understanding the bridging loan meaning is important: these facilities are temporary and must have a clear exit strategy.
Reviewing best bridging loans options can help if you’re completing quickly and refinancing into longer-term funding later.
Bridging finance should always be used strategically – not as a long-term solution.
How Much Deposit Do You Need?
There’s no fixed rule, but commonly:
- 10-30% equity contribution
- Lower where cash flow is strong and predictable
- Higher in riskier sectors
Vendor finance can reduce upfront equity requirements, particularly if the seller is confident in ongoing performance.
A well-structured deal balances leverage with sustainability. If repayments feel tight from day one, that’s usually a warning sign.
Personal Guarantees: Don’t Ignore the Risk
Many lenders require personal guarantees in SME acquisitions.
However, depending on the deal size and structure, you may be able to:
- Cap the guarantee
- Reduce exposure over time
- Replace unsecured facilities with structured alternatives
Always understand exactly what you’re signing.
The First 100 Days After Completion
Buying the business is just the beginning.
Your focus should be:
- Reassuring staff
- Meeting key customers
- Reviewing supplier agreements
- Monitoring cash daily
- Stress-testing forecasts
This period determines whether the transition is smooth or stressful.
- Overpaying based on optimistic forecasts
- Ignoring working capital requirements
- Underestimating reliance on the owner
- Taking unsuitable funding
- Rushing due diligence
Buying a business requires realism, not excitement.
Final Thoughts
Learning how to buy a business isn’t about complexity – it’s about structure.
Strong acquisitions tend to share three traits:
- Sensible valuation
- Thorough due diligence
- Funding aligned with cash flow
When leverage is manageable and working capital is properly structured, buying a business can accelerate your path to income and growth.
But when deals are rushed, under-analysed, or over-leveraged, pressure builds quickly.
Approach it methodically. Ask difficult questions. Structure funding carefully.
Done properly, buying a business can move you forward years faster than starting from scratch – and with far more predictability.
