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Buying a business out of administration: what your clients need to know
Purchasing a business out of administration can offer unique opportunities, but it comes with complexities that require careful planning. Having supported many business owners and directors through this process, on both sides of the situation, in our experience, there are several things to be mindful of.
Why this business?
Buyers should have all supporting information ready, proof of funds, sector knowledge, and details about the purchaser, to strengthen their offer. It is crucial to research the business thoroughly and consider how it fits with existing operations. If the acquisition is intended as a bolt-on to an existing business, buyers should plan how it will be integrated and identify potential benefits, such as access to new customers, expanded services, or opportunities to increase turnover and profitability.
Additionally, certain licences or accreditations may not automatically transfer, so it is important to verify these early in the process.
Funding is not just about the purchase price.
When buying a business out of administration, more funds than the purchase price alone are needed, in a similar way to more than a deposit is needed when purchasing a property. Working capital to cover operational costs, including payroll, supplier payments, or urgent “ransom” payments to keep critical services running, is required.
Be aware that deferred payment arrangements often require security or personal guarantees.
Management.
Making the decision of whether to retain the existing management team can be crucial. If the current team are staying with the business, their support will be influential in its success. It may be worthwhile incentivising key staff with bonuses or shares in order to preserve their knowledge and maintain customer confidence.
Credit history.
Be aware that if the business is newly incorporated, they may have limited credit history, making funder’s terms more restrictive. This could cause issues further down the road.
Accessing supplier credit can be impacted, as credit reference agencies are unlikely to rank the new company favourably. This often means buyers cannot build up large balances for the purchase of raw materials or stock, putting pressure on cash flow.
Due diligence of the law.
When making any major business decisions, the right advice is essential. In the case of buying a business out of administration, an appropriate law firm is vital. Solicitors experienced in insolvency can guide you through the process and help manage risk.
How LC Can Help
At LC, we provide a comprehensive service to support buyers through every stage of acquiring a business out of administration.
Our commercial brokerage team can arrange purchase funding and provide working capital options to ensure the business remains operational during the initial period.
Leonard Curtis Legal offers expert guidance on all aspects of business sale transactions, from structuring the deal to reviewing documentation, ensuring the process is smooth and legally sound.
Beyond the transaction itself, our performance advisory team works closely with buyers to identify cost-saving opportunities, streamline operations, and maximise profitability, helping the business hit the ground running.
With the right planning and professional support, buying a business out of administration can be a strategic opportunity to acquire valuable assets and grow a business with confidence.
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Leonard Curtis is a trading style of Reach Commercial Finance Limited, registered at Riverside House, Irwell Street, Manchester, M3 5EN. Company Register number is 09056450. Reach Commercial Finance Limited is authorised and regulated by the Financial Conduct Authority, FRN: 753686. Reach Commercial Finance Limited is an authorised credit broker and not a lender. We work with a an unrestricted number of lenders to find a potentially suitable arrangement for your consideration. ICO registration ZA069234 and you can check via www.ico.org.uk. We will receive commission from lenders. Different lenders pay different amounts depending on different commission models. For transparency we work with the following commission models: fixed fee, fixed rate of commission, percentage of the amount you borrow and rate for risk (this is based on the risk profile of the business). Further details of the commission model, calculation and amount will be disclosed to you throughout your customer journey. Privacy notice.
Leonard Curtis Legal Limited is a limited company, registered in England and Wales with registered number 09820186. Registered office: Riverside House, Irwell Street, Manchester M3 5EN. Leonard Curtis Legal Limited is registered with the Solicitors Regulation Authority with number 626004.