Scotland is arguably one of the best places in the world to start a business, providing an accommodating environment with more than 600 organisations supporting entrepreneurs. Scotland offers more funding, mentoring and free office space than anywhere else in the UK, and has been investing in the startup space for a quarter century.
But starting from scratch isn’t for everyone – there are many good reasons to consider buying an existing business and making it your own. This article provides some helpful tips on how to buy a business in Scotland.
The best place in the UK to start a business
According to data from iZettle, Scotland is ranked as the best place in the UK to start a business due to the level of support, funding and resilience. Scotland is known for its entrepreneurial spirit, with successful startups Brewdog and Tens being two good examples. Scottish entrepreneurs and small business owners cite their ‘warrior spirit’ and strong family support networks as being key to their success. Perhaps unsurprisingly, Edinburgh has been named the best city in the UK to launch a startup, ahead of London, Bristol and Glasgow.
Thriving industry sectors
According to data from March 2017, there are an estimated 365,600 private sector enterprises operating in Scotland. This is the highest figure to date. At the time, the two dominant industry sectors were ‘professional, scientific and technical activities’ and construction, comprising 27% of all Scotland’s private sector enterprises.
Likewise, the software sector in Scotland has been developing rapidly. In 2016 there were approximately 40,226 people working in digital across Edinburgh, Glasgow and Dundee – a number that’s surely increased. Scotland’s experienced energy sector and supportive business environment is also making it a hotspot for renewable energy companies.
Scotland’s tourism economy also deserves recognition, accounting for around 5% of the country’s GDP and 7.7% of employment. Not surprising, given its unspoiled countryside, landmark cultural events and fascinating history.
The pros and cons of buying a business
There are many reasons why buying an existing business makes sense. Here we cover some of the advantages and disadvantages:
Advantages:
- Much of the groundwork has already been done
- A market for the product or service has already been demonstrated
- You have a network of established customers and contacts to build on
Disadvantages:
- You may need to invest a large amount up front and budget for professional fees
- You may be required to honor outstanding contracts made by the previous owner
- When you take on a business with existing employees, staff morale may be low
Business valuation methods
When it comes to valuing a potential business purchase, there are several methods you can use. It’s worth speaking to your accountant, as they may be able to help. Here’s a basic checklist of areas to look into:
- Business history
- Current performance
- Future projections
- Present financial situation
- Reason for sale
- Outstanding litigation
- Regulatory conditions
Not only should you have an in-depth discussion with the present owner, you should also look to speak with their existing customers and suppliers, who may provide supplementary information not highlighted by the owner. On top of this, there are factors like stock, assets, premises and employees to consider, not to mention intangible assets such as the company’s reputation. All of this should be taken into account when you come to value a business.
Taking on existing employees
When someone new takes over a business, Scottish regulations imply that existing employees will automatically start working for the new owner, under the same terms and conditions. This is something to think long and hard about before you invest in a business.
Making personnel changes such as reducing employee numbers or reorganising staff can be delicate, as employees may decide to take you to an employment tribunal if they feel the circumstances are unfair. Always consult a solicitor first, and consider waiting until the end of your due diligence period before making big changes.
Lastly, when you become the new business owner, you’re not legally obliged to take over the same occupational pension schemes put in place by the previous owner, but you may find that conflict arises if you don’t provide a comparable pensions arrangement.
Online business vs. offline business
Online businesses can be very appealing, primarily because they overcome a lot of traditional hurdles. You have better scalability, limitless freedom, lower overheads and access to a global market. Not everyone wants to start building an online business from scratch, which makes buying an established Scottish business an appealing alternative.
When you buy an online business, you have a ready-made brand with a business model and monetization strategy already in place, which allows you to get straight down to business. Your success will come down to your ability to run and manage the business, and to get your name out there in a shouty, overcrowded online marketplace.
Just like with an offline business, you need to do your due diligence. Perhaps the store is for sale because it isn’t doing so well. Use tools like SEMRush and Ahrefs to analyse its website traffic and backlink profile before you approach the existing owner and open negotiations.
If you’re thinking about buying a business in Scotland, now is a great time to do so. Share your thoughts and tell us about your journey in the comments.