Q&A - What are the pitfalls of buying a business during the COVID pandemic?

Q:    I have been made redundant following an initial period of furlough. As my pay-out was substantial, I have decided to work for myself. Rather than set up a business from scratch, I am looking at buying a small business that is already established as I think there may be some good opportunities, such as where the current business owner cannot find a necessary cash injection, or perhaps has decided to retire early due to unwanted pressures of the COVID situation. Obviously, there will be pitfalls in buying at the moment so can you give me some pointers?

A:    Carrying out due diligence has never been more important than it is now, and you need to be asking a great many questions relating to how the business has been affected to date by the coronavirus pandemic and how is it likely to be affected in the short, medium and long term.

Check supply agreements and customer contracts to see whether they might present problems further along the line. Look at the supply chain and how that could affect your own productivity and ability to meet orders and deadlines. Have financial projections been future proofed to take account of COVID related risks? What government help has been taken and is any other help available? In respect of what you might expect to pay for a business, look at when the business was valued and whether that value may now need adjusting. Could the purchase price be conditional on financial performance between offer and sale?

These are just a very few of the considerations you should be taking into account during such uncertain times. As soon as you have a business in mind for purchase you should seek legal advice from a commercial lawyer who can guide you through all the stages of due diligence.

Article 25/01/21

This question has been answered by Robert Williams, a Partner with GHP Legal.  If you would like to speak to someone about this or any other legal matter it is still possible, and we are doing everything we can to ensure that we continue to offer our high levels of service to our clients.  In accordance with government guidelines, some of our lawyers are currently working remotely which means you may not now receive a response as promptly as you may expect. Please kindly bear with us and we will respond as soon as we are able.


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Robert Williams

Robert Williams

Partner

Partner and Head of the Civil Litigation, Personal Injury and Dispute Resolution team in Wrexham