Question 1

How do you buy an existing business, and what should you check?

Accepted Answer

Through a structured process — **identify, value, offer subject to due diligence, investigate, negotiate, complete** — and the investigation stage is where the real work is, because what you are buying is rarely what the seller has described.

**The two structures, which have very different consequences:**

**Asset purchase.** You buy specific assets — equipment, stock, goodwill, contracts — leaving the legal entity with the seller. **Liabilities generally stay behind**, which is why buyers prefer it. Contracts and leases may need consent to transfer, and employees usually transfer automatically with their existing terms and continuity of service under employment transfer rules.

**Share purchase.** You buy the company itself, and therefore **everything in it** — including liabilities you have not discovered. Simpler operationally, riskier legally, and normally preferred by sellers for tax reasons.

**What due diligence must actually cover:**

**Financial.** Verified accounts, management accounts, and critically the **quality of earnings** — whether profits are recurring or flattered by one-offs. Check debtor ageing, stock valuation and whether the owner has been taking an unrealistically low salary, which inflates apparent profit.

**Customer concentration.** A business where one client is a large share of revenue is far riskier than the headline suggests.

**Owner dependence — the most commonly fatal issue.** If the customers, the supplier relationships and the technical knowledge live in the departing owner's head, you may be buying very little.

**Legal.** Contracts, leases, litigation, licences, intellectual property ownership, and whether key contracts have **change of control clauses** allowing the other party to walk away.

**Employment.** Terms, liabilities, disputes, pensions.

**Tax**, including historic compliance, which follows the company in a share sale.

**How the risk is managed:** warranties and indemnities in the agreement, a **retention** held back, and an **earn-out** tying part of the price to future performance — which also keeps the seller engaged.

**Agree the handover explicitly**, including how long the seller stays and what introductions they make.

General information, not legal or financial advice.

Question 2

What is due diligence, and what do investors actually look at?

Accepted Answer

The verification process between agreeing terms and money arriving — where an investor checks that what they were told is true, and where deals most often slow down or collapse. Why it exists. A term

Question 3

What is an earn-out, and why do acquisitions use them?

Accepted Answer

A structure where part of the purchase price is paid later, conditional on the business hitting agreed targets. It exists to bridge a disagreement about value: the seller believes the business will

Question 4

What is working capital, and why does it matter so much?

Accepted Answer

Working capital is the money tied up in running the business day to day — current assets minus current liabilities. It matters because it is where cash goes to hide. What is in it: Stock (inventory)

Question 5

What is the difference between a sole trader, a partnership and a limited company?

Accepted Answer

Whether the business is legally separate from you — and that single question drives liability, tax, admin and how you get paid. Sole trader. You are the business. No legal separation. Liability is

Question 6

How to choose the right business structure for my startup?

Accepted Answer

Choosing the right business structure for your startup is vital for liability, taxes, and growth. Evaluate factors like liability protection, tax implications, and funding needs to make an informed decision.

Question 7

What records must a business keep, and for how long?

Accepted Answer

Enough to support every figure in your accounts and tax returns, kept for a statutory minimum period that varies by record type and jurisdiction — and the burden of proof is on you, not on the

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