Thinking of buying a business but don’t know how to? In this Guide, we’ll take you through the practical process of buying one.
We are assuming that you’ve already found a business you want to buy, and you’ve got the funds to do it. (Funding itself will be covered in a future article.)
Two ways to buy an existing business
There are two usual methods to buying an active business. You can either:
1. Buy as an asset sale
You will be buying all the “good stuff” from the business, such as:
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- Brand name
- Stock
- Machinery
- Customer lists
- Website(s) and socials
With this method, the “bad” stuff including loans and any historic tax debts remain with the seller.
(If you’re buying a sole trader business, this will always be via an asset sale.)
2. Buy all the shares in a limited company.
If you are buying a limited company, sellers will usually want you to buy the shares because of the tax benefits to them. However, this means you buy the company ‘warts and all’, with the risk of any hidden problems it may have. (There are ways to reduce those risks – more on this later.)
Business ownership
Next you need to decide how you want to own the business. Generally you have two choices:
- Own the shares or the business assets personally, or
- Own the shares or the business assets via an SPV, a Special Purpose Vehicle.
Most people in our experience choose the second option, and create a new limited company that they own (often referred to as an SPV, a Special Purpose Vehicle). The SPV in turn owns the new business.
Whilst rare, you can also own the purchased company through a trust or limited liability partnership, for example.
Agreeing the company’s position
Before you make your purchase, all parties involve need to agree on the financial position of the company. An active company does not have a fixed state: if you agreed on its position today, it will most likely change by tomorrow. There are two ways to account for the fluctuations in value.
1. The lock box approach
You agree on a set of accounts at a given date, and also agree:
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- Which elements can shift /change without affecting the sale price
and
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- Other changes that will require adjustments to the sale price (either up or down).
For example, normal trading expenditure is usually allowed, but paying out a huge dividend the day before the sale isn’t. “Locking down” these restrictions requires a number of contractual clauses and legal documents (more on these in the next section).
2. The completion accounts approach
In this approach, you agree on a set of accounts, usually produced by the seller. Then after the sale, a second set is drawn up to establish the actual position on the day the business changed hands. Any change in overall value of the position, often referred to as the ‘NAV’, or net asset value, and the sale price is adjusted accordingly.
For example:
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- The agreed price based on the pre-completion accounts is £350,000. Often your lawyer/solicitor will retain a little of this amount for the post-completion adjustments.
- If the company position has worsened, you as the buyer may get some money returned by the solicitor, as the price has effectively gone down.
- If the company position has improved, you as the buyer might need to pay a little more than the agreed fee. This is actually a good thing (!) as it means the business value has increased between the sale date and now, which you as the new company owner benefits from.
If you’re not sure which approach is best for you, contact your accountant, or get in touch with us if you prefer.
The teams involved
When buying a small business for the first time, you will require a team of specialists to ensure everything is legal and watertight, including:
- A commercial lawyer: They will prepare or advise on the legal aspects of the deal, including the Share Purchase Agreement (the “SPA”).
- An accountant or tax advisor:They need to look at the tax implications of the deal and how it might be structured . For example, money paid upfront versus over time can have very different tax consequences, and there might be VAT issues to consider too. You can also ask their views on the purchase price/ business value.
- A finance broker: If you are looking to borrow money to purchase the business, you will likely need one of these. Equally if you’re borrowing from a bank, you might need to work with the bank’s own lawyers as well.
For large deals, you might also engage a specific professional just to link everything together and keep the deal moving, and ensure smooth communication between the various professionals involved. You might also bring in valuers or HR professionals, if required.
This may seem a large and potentially expensive team just to buy a business, especially with professional fees to pay throughout the deal. However, their involvement from the outset will save a great deal of time and energy, and help you get the best deal for you as the buyer.
Initial “Heads of Terms”
A deal often starts with an informal agreement between buyer and seller that agrees in concept what’s included or excluded from the deal, and a sale price. This informal agreement is further refined with input from the professional teams, and becomes a Heads of Terms, covering the key aspects of the deal: who’s buying what, and for how much.
A Heads of Terms is not usually legally binding. However, in our experience, Heads of Terms can include an agreement to cover the other party’s costs if you were to pull out. There will often also be exclusivity or non-disclosure clauses (“NDAs”), ensuring it is safe to disclose relevant sensitive information.
Once the Heads of Terms are signed, the process usually moves into the lawyers’ domain with the drafting and discussion of the Sale Purchase Agreement (SPA).
The SPA and due diligence
While your lawyers are working on the SPA, your tax advisors or accountants will often recommend some tax and accounting due diligence. This process involves digging into the accounting records and tax returns of the company you want to buy, to check that what the seller has presented is actually accurate, and there are no hidden tax liabilities, debts, HMRC issues, etc.
Due diligence is important. Sadly, we often see that a business’s accounting records aren’t fully accurate. This does not necessarily mean that the seller is doing anything dishonest. Often, it’s just that the bookkeeping or accounts haven’t been properly maintained or looked at often enough.
A common example is a list of customers who owe money, which on further investigation reveals that many of these are not collectable, and need writing off.
Legal due diligence should also be conducted on areas such as customer contracts, or any property involved. If existing staff are to be retained, your HR professionals may look at employment contracts under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (aka TUPE). TUPE protects employees’ rights when the business or service they work for transfers to a new employer (i.e. you).
Due diligence can be one of the more expensive costs in buying a business, because it’s time-consuming and the amount required varies according to the size of the deal.
Reaching an agreement
There’s usually a lot of back and forth between lawyers, you as the buyer, and the seller, to agree the contents of the SPA. This will include a section of warranties which is a form of insurance against risk. The warranties basically say, if you’ve misrepresented something here, we can come back to you for the money. For example, there’s often a tax warranty stating that if there’s an undeclared tax bill, the seller needs to cover it.
Whilst we are not lawyers, in our experience it’s best not to rely heavily on warranties. If you do have to, that action will incur further legal fees, and the seller may not have the money to pay you if you enforce it. There is also insurance available to cover many of these warranties.
The seller’s lawyers will usually also draw up a disclosure letter, declaring any known issues. The warranties and the disclosure letter tend to work as a pair. If a bank is funding the purchase, the bank’s lawyers will no doubt want clauses ensuring the loan gets repaid.
Completion
Once all of the above is agreed, the SPA is signed by both you and the seller, and the deal completes. At this point, money usually changes hands via your lawyers or solicitors.
If you’re buying a limited company under a completion accounts structure, this starts a period where the final accounts need to be sorted to settle the price and any remaining payments. Even under a lock box structure, there’s normally a rush to check the numbers and confirm nothing unexpected has happened and no clause has been broken.
This is also the point when the practical handover happens: logins are transferred, bank mandates are changed, Companies House is updated, and any stamp duty is paid.
Now you can crack open the bubbly as the buying process is effectively done, It’s now time to get in and run your newly acquired business.
How much does buying a business cost in legal fees?
In our experience, it’s unlikely many lawyers will undertake the process of buying an active company for under £5,000, though there will be exceptions.
For tax advice and accountancy, so much depends on the scope of due diligence required, but you should budget for at least £5,000 minimum.
If we look at the sales and purchases we’ve supported in 2026, the combined legal and accountancy fees range between £5,000 to £300,000, so it really does depend on the deal and how long everything takes.
So, if lawyers and accountants are involved, even in a small deal, it would be appropriate to budget for a minimum of £10,000-£15,000.
That matters a lot if the deal itself is only worth, say, £30,000-£40,000. So, we get asked all the time by clients, “Do I actually need a lawyer?”. Our answer is generally yes, it’s better and far less risky if you use a solicitor or lawyer. This is particularly true if you’re taking on staff or premises with the business.
How long does buying a business take?
Most clients underestimate the time it will take and hope that “it’ll all be done in six weeks”. We have seen deals done in six weeks, but those tend to be very small, with minimal due diligence and few parties involved. Six months is far more realistic, particularly if you’re trying to buy a business over a major holiday such as Christmas, or during a long hot summer holiday(!).
Want help in buying a business?
Even after reading our great Guide you may still want some assistance, so ask your accountant first. If your accountant has limited experience of clients buying businesses, feel free to contact us instead.
About the author
Dan Heelan is the Business Services Director of Heelan Associates, an accounting firm that helps small business owners across the UK start, survive, and grow.
With a background as a small business owner himself, he discovered his passion for accounting and tax early in his journey and now focuses on empowering fellow entrepreneurs with the knowledge and tools to navigate the financial side of running a business.
You can see and hear Dan in action in his regular: