A sandwich shop in a market town comes up. Three years of accounts, turnover holding steady at about £180,000, a lease with six years left, and a seller who says his knees have gone. The asking price is £95,000 including fixtures and stock at valuation. It looks like a job you can buy.
Then you ask for the VAT returns and they do not match the accounts. Then you ask who owns the chiller and it turns out to be on finance. This is normal. Buying a trading business is mostly the work of finding out which parts of the story are true.
You are buying either the company or the bits
There are two shapes of deal and they behave completely differently.
In a share purchase you buy the limited company itself. Everything comes with it: the trade, the contracts, the bank account, and also the PAYE arrears, the disputed invoice from 2022 and the employment claim nobody mentioned. Sellers prefer this because it is a clean exit for them.
In an asset purchase you buy the trade and the assets, and the old company keeps its own liabilities. Buyers prefer it. The price is often the same but the risk is not.
Either way, some things follow the business rather than the paperwork. Employees are the main one. Under the Transfer of Undertakings (Protection of Employment) Regulations 2006, staff working in the business transfer to you on their existing terms, with their continuous service intact. You cannot buy the trade and leave the people behind, and dismissing someone because of the transfer is automatically unfair. There is also a duty to inform and consult before it happens.
If the business is VAT registered and you are buying it as a going concern, the sale may qualify as a transfer of a going concern and fall outside the scope of VAT. The conditions are specific and HMRC does look at them. Get it wrong and 20% lands on a price you had budgeted without it.
The multiple is a sentence about risk, not a valuation method
Small owner-operated businesses usually change hands at a low multiple of adjusted profit. Adjusted means you take the profit in the accounts and add back the things that exist because of this particular owner: the salary he pays himself above market rate, his wife's car, the golf club subscription. Then you take off the cost of whatever he does that you will have to pay someone else to do.
That adjusted figure is what you multiply. The multiple itself is an opinion about how likely the profit is to survive the handover. A business with contracts, a manager, and no single customer over 10% of turnover earns a higher one. A business that is really one man with a reputation earns a lower one, and sometimes earns nothing at all, because what you would be buying is a van and a customer list that will drift.
Goodwill is the gap between the price and the value of the tangible assets. It is not a fiction, but it is fragile. It depends on the name above the door, the position, the habits of local customers, and none of that transfers automatically to you.
Due diligence is four documents and a lot of questions
You do not need a City legal team. You do need these:
- Three to five years of full accounts, not the filleted version filed at Companies House. Small companies can file very little publicly, so the public record tells you almost nothing about profit.
- VAT returns and bank statements for the last two years, so you can see whether the declared takings actually arrived.
- The employment records: contracts, written statements of particulars, holiday accrued, pension auto-enrolment status, and anyone on long-term sick or maternity leave.
- The asset list, marked with what is owned, what is leased, and what has finance secured against it. Check for charges registered at Companies House.
Then ask about the things that have no document. Which customers left last year. Whether the council has ever served a notice. Whether business rates are being appealed. The rateable value is set by the Valuation Office Agency and sits on the current rating list, so you can look it up yourself before you ask.
The lease decides more than the price does
For a shop, a workshop or a café, the lease is the business. Read it before you read the accounts.
Assignment almost always needs the landlord's consent, and the landlord will want references, accounts and often a personal guarantee from you. In a lot of assignments the outgoing tenant signs an authorised guarantee agreement, which means the seller stays on the hook for you. That can make him keen to check you can pay, which is a useful sign of how seriously he takes the figures.
Then check whether the lease has security of tenure under Part II of the Landlord and Tenant Act 1954, or whether it has been contracted out. Security of tenure gives you a statutory right to renew at the end of the term, subject to the grounds the landlord can use to oppose it. Contracted out means that in six years you hand the keys back and the goodwill you paid for stays in a building that is no longer yours. That single clause changes what the business is worth.
Check the repairing obligation too. Full repairing and insuring means the roof is your problem, including the part of it that was already failing when you signed.
Ask why he is selling until the answer stops changing
Retirement, ill health and divorce are real and common. So is a supermarket getting planning permission two streets away, a landlord who has already indicated a rent review, a key member of staff who has handed in notice, or a contract that comes up for tender in March.
The seller is not obliged to volunteer any of it. He is obliged to answer the questions your solicitor puts in writing, and the answers become part of the contract through the disclosure letter. That is why the questions have to be specific. Asking whether there are any disputes gets you nothing. Asking whether any customer representing more than 5% of turnover has given notice in the last twelve months gets you something.
Hold back part of the price if you can. A retention released after six months, or an earn-out linked to the turnover actually achieved, moves risk back towards the person who knows the business best.
Where this shows up in the game
Business Baron lets you buy a trading business rather than start one, and the seller's asking price is built from the same components: adjusted profit, a multiple that reflects how dependent the business is on him, and a lease you have to read. Buy a business held together by one owner and you will watch the trade drift over the following year. Making the expensive version of that mistake in a game costs you an evening rather than your savings.