Buying an established business can feel like a safer option than starting from scratch. There is a trading history, an existing customer base, and some sense of how the business performs in the real world. That said, buying an established business brings its own risks, and those risks are not always obvious at the start.
We regularly advise buyers who assume that longevity equals stability. Sometimes that is true, but sometimes it is not. This article looks at what you should consider when buying an established business, based on our experience.
Why is the Business Being Sold?
One of the first questions you should ask yourself is why the business is on the market?
There are many sensible reasons to sell, such as retirement, succession issues, or a desire to move on, which are all common. But you should not gloss over this point. The reason for the sale could be something that you don’t want to sign up for.
If a seller struggles to explain their motivation clearly, that does not automatically mean there is a problem. However, it does mean you should listen carefully and ask follow-up questions.
Look Past the Track Record
An established business has a history, which is useful information, but it should not replace proper analysis.
Unfortunately, we’ve seen that past performance does not guarantee future results. Markets can change rapidly, sometimes key customers leave and running costs rise. If you’re buying an established business, you look at whether the business model still works and whether it can continue without the current owner. If its success depends too much on individuals rather than systems, this can be a red flag (as we get into below).
An earn-out is often the middle ground. You receive part of the price at completion and the rest if the business performs in the way both sides agree. You may want to read: How to Structure Earn-Outs?
How Dependent Is the Business on The Owner?
This is one of the most common issues we see. Many established businesses revolve around a founder or long-standing owner. They hold key relationships, make most decisions, and know how everything works. That can be a strength while they are involved, but it can also be a risk once they leave.
When buying an established business, you should think about how the business will operate without the current owner and how long any handover period realistically needs to be. In some cases, buyers discover too late that the value of the business walks out the door with the seller.
You should also think about how comfortable you are stepping into the owner’s role. In some businesses, the owner acts as a problem-solver, mediator, and decision-maker all at once. If that role has never been shared or documented, the transition can be harder than expected. We often see buyers underestimate the time and involvement needed in the first year after completion, particularly where the seller has been central to day-to-day operations.
Review the Financial Information Carefully
Established businesses often have accounts that look reassuring at first glance, but that doesn’t mean you should take them at face value.
You should always look at how profits are generated and how consistent they are. They might have had one excellent year, but does this tell the full story? What you want to see is a long-standing pattern of reliable returns.
It is also worth checking how closely management accounts align with statutory accounts. If there are significant gaps, this might be cause for concern.
Customers and Revenue Stability
Buyers are often drawn to established customer bases. The key question is how stable those relationships really are.
It’s always good to have a clear picture of who the main customers are and whether revenue is concentrated in a small number of relationships. Heavy reliance on one or two customers often affects risk and price. How easy is it for these customers to leave? What keeps them loyal? These are all questions you need to consider.
Contracts Matter More Than You Think
When buying an established business, contracts often hold more weight than buyers expect.
Customer and supplier contracts are reviewed to check length, termination rights, pricing mechanisms, and restrictions on change of control. Some contracts may not transfer automatically, which can cause issues. If the business relies on informal arrangements, then you need to have further discussions.
Employees and the Wider Team
Established businesses usually come with established teams. That can be attractive, but you always need to know who you are dealing with. Who does the business depend on? What terms are they on? Have there been any disputes or unresolved issues? Long-serving employees may have expectations that are not obvious from their contracts. And if the success of the business depends on a small group of people, you should think about retention and continuity after completion.
Systems and Processes
Older businesses sometimes rely on systems that evolved over time rather than being designed deliberately. When buying an established business, you should consider whether systems are fit for purpose and whether you can understand and operate them. This applies to accounting systems, order management, customer data, and internal processes. If everything sits in one IT person’s head or clunky legacy systems, that creates risk for you as a buyer.
Property and Premises
If the business operates from physical premises, property issues deserve close attention. You should understand whether premises are owned or leased, on what terms, and for how long. If there are informal arrangements, especially where property is owned personally by the seller, then you need to seek further clarification. Property costs and restrictions can affect flexibility after completion.
Legal History and Disputes
It’s not uncommon to find legal disputes in the history of an established business. You should expect due diligence to cover existing claims, past litigation, regulatory issues, and complaints. The existence of a dispute doesn’t always mean you should stop a deal, but it is something you need to know about.
Some disputes are part of running a business and have been resolved sensibly, but others might point to wider problems with systems, relationships, or compliance. You’ll need to understand the full background to make a judgment call on whether the issue is isolated or likely to repeat once you take over.
Take Due Diligence Seriously
We can’t emphasise this enough! When buying an established business, due diligence is absolutely key.
It is the stage where you get to review documents, ask all the important questions and identify major risks that may not have been otherwise apparent. It might feel like a slow and frustrating process, but it’s essential that you take it seriously, or you risk getting saddled with problems that only come to light once it’s too late to walk away.
Think About Structure Early On
Whether you buy assets or shares affects risk, tax, and flexibility. There is no single right answer. The right structure depends on the business, the risks you are prepared to take on, and what you want to achieve after completion. But this is why legal advice at an early stage is so important – it helps you avoid locking into a structure that works against you later.
Plan For Day One After Completion
You might be so elated to have bought a business that it’s not top of mind what you’re actually going to do on day one. You should think about access to systems, handover arrangements, communication with staff and customers, and what support you will receive from the seller. These practical points often make the difference between a smooth transition and a difficult one.
You should also think about how decisions will be made in the early weeks after completion and who will deal with problems as they come up. Even small delays around access, authority, or information can cause frustration and undermine confidence. A clear and realistic plan for the handover period often sets the tone for how the business performs under new ownership.
Keeping Expectations Realistic
Buying an established business can be a great opportunity, but it can also be demanding. You should be realistic about risk and workload and don’t be too ambitious in those early weeks and months. The most important thing is that you make good long-term decisions, so try not to be too hasty with big changes and overhauls.
How JPP Law Can Help
JPP Law advises buyers across England and Wales on buying established businesses. We help clients assess risk, manage due diligence, and structure transactions in a way that makes sense for their goals. Our approach is practical and focused on helping you make informed decisions.
If you are considering buying an established business and want clear advice on the legal aspects, book an introductory call with a member of our legal team today.
You maty also want to read
