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Enterprise & ownership

Buying a business instead of starting one

The route most people never consider: buy the customers, the staff and the cash flow that already exist.

Degree & MBAEntrepreneurship / MBA — M&A
Also called: acquisition, due diligence, earn out, asset vs share purchase

In one paragraph

You can become an owner by buying a business that already works, rather than building one from nothing. It costs money instead of time, and it carries a completely different set of risks.

The appeal is obvious: existing customers, existing revenue, staff who know the job, and a trading history a lender will actually look at. Starting from nothing has none of those.

Asset purchase or share purchase

A share purchase buys the company itself — and everything it owes, including liabilities nobody mentioned. An asset purchase buys selected assets and leaves the old company behind, which is safer for the buyer and usually worse for the seller's tax position. That tension is what much of the negotiation is about.

Due diligence is the job

Verify the revenue, not the claimed revenue. Look at customer concentration, whether contracts transfer, whether the staff will stay, what the owner personally does that nobody else can, and what is owed. The reason a business is for sale is a question worth pressing on.

Earn-outs — part of the price paid later, contingent on performance — bridge the gap between what a seller believes and what a buyer will risk. They also tie the seller in and are a common source of dispute.

The single biggest risk in a small acquisition is that the business is the owner. If the customers are loyal to them and the knowledge is in their head, you may be buying an empty shell at a full price.

How to actually use it

  • Ask what happens to revenue if the owner leaves on completion day. If the honest answer is 'a lot of it goes', structure the deal so they cannot.
  • Verify earnings independently before agreeing a price. Adjusted figures are adjusted by the person selling.

Where it breaks down

  • Needs capital or lending, which is a genuine barrier the start-up route does not have.
  • You inherit a culture, a reputation and a set of habits, and changing those is harder than building them from scratch.

If you are being examined on it

Compare against organic growth explicitly: speed and certainty against cost, debt and integration risk.