Buying a UK business can be an exciting growth opportunity, but making the right choice requires careful financial and tax due diligence.
Whether you are a UK-based buyer or an overseas investor, here are some of the key things to look for when assessing your target company from a financial perspective.
Assets and liabilities
Start by reviewing the company’s balance sheet. What assets does it hold, and how are they financed?
Is equipment owned, leased or subject to hire purchase? Are asset values realistic or overstated?
An independent valuation of property, plant and equipment may be worthwhile, especially if real estate or high-value stock is involved.
Equally important is understanding what the business owes.
Review the latest accounts for liabilities, such as bank loans, supplier debts, or unpaid taxes, and ask for up-to-date management figures, particularly if the last year-end was several months ago.
Profitability and cash flow
Look beyond top-line revenue. Is the business genuinely profitable once you strip out any one-off items or personal costs of the previous owners?
Examine gross and net margins, and compare them to industry benchmarks. A profitable business on paper might still be starved of cash, so check cash flow statements, debtor days and supplier payment terms.
Unexpected working capital needs can turn a good deal into a costly one.
Tax position
Review Corporation Tax, VAT and PAYE filings, and check for any outstanding liabilities or compliance issues with HMRC.
Are there any director’s loan accounts that need to be cleared or taxed? Could there be hidden tax exposures, such as misclassified staff, poorly structured dividends, or underdeclared revenue?
Also consider whether a share purchase or asset purchase is more tax-efficient for your circumstances, as each carries very different implications for Stamp Duty, tax reliefs, and liabilities.
Contracts and financial commitments
While solicitors will help review legal agreements, accountants can assist in evaluating the financial terms of leases, service contracts, or long-term supply deals.
Are there any onerous contracts or guarantees that could affect the value or performance of the business post-sale?
Payroll, pensions and employment costs
Employees are a key cost and risk area. Analyse the payroll structure, including salaries, bonuses, and pension obligations.
Does the company operate PAYE correctly? Are there accrued holiday pay or redundancy liabilities? TUPE may apply depending on the structure of the sale, this will have both tax and accounting implications.
Other areas to review
- Insurance – Are policies up to date and adequate for the business’s risk profile?
- R&D or capital allowances claims – Has the company claimed reliefs properly, and are any under HMRC enquiry?
- Accounting systems – Are financial systems fit for purpose, or will they need investment?
Our experienced team provides clear, commercial advice on financial due diligence, valuation, tax structuring and post-deal planning.
If you are considering acquiring a UK business, speak to us today.
Reanda UK is a subsidiary of leading independent accountancy firm Grunberg. Our aim is to help businesses and individuals to navigate the UK’s world-renowned business and tax infrastructure, and to support them with their international ambitions. To find out how we can help you, please contact us.