Pricing a business can be something of a “dark art” and it is advisable to seek advice from an expert.

Once an agreement has been reached with a buyer, it is helpful for a “heads of terms” to be produced setting out the key terms of the sale as this will save time as the sale progresses and the more substantial documents are negotiated and agreed.

The buyer will usually then raise a number of legal and financial due diligence enquiries to confirm that the agreed purchase price for the company represents its value and also to obtain more detailed information about the company before proceeding any further with the transaction.

Once the due diligence process has been completed, the business sale agreement will be negotiated and agreed. This will be done by both your and the buyer’s solicitors. There will also be a number of ancillary documents required such as a disclosure letter, board minutes and resolutions and share transfers. Whilst the business sale agreement is the main document, these ancillary documents are necessary to ensure compliance with company law.

The above comments on the steps involved in selling a business also apply to buying a business though, of course, you will be on the “other side” of the transaction.

Perhaps the most crucial stage in the purchase of a business is the due diligence stage. Your solicitors will raise a broad range of enquiries relating to the business you are purchasing. Particularly useful enquires relate to the trading history of the business and its finances, the assets of the business and whether the business is exposed to any potential or ongoing litigation claims. Your solicitor will prepare a report for you to consider relating to the seller’s legal due diligence responses and your accountant will similarly prepare a report on the financial responses for your consideration.

The detail of the due diligence enquiries and reports will depend on your prior knowledge of the business. If you have worked in the business for a long number of years and are familiar with its runnings, it is likely that the due diligence process can be dispensed with.

The due diligence reports put you in a far better position to determine whether to proceed with the purchase as agreed or if further negotiation is required around the price or to ensure certain issues are resolved before completion of your purchase.