If you are looking to buy a business, you may consider buying one from an administrator. An administrator is someone who has been appointed by a company or court to sell the assets of a company that is in financial difficulty.
When a company goes into administration, it is usually because it is unable to pay its debts. This can be due to a number of reasons, such as bad management, the economic recession, or problems with the industry in which the company operates.
- Why Do Businesses Go Into Administration?
- How Long Can a Business Stay In Administration?
- Buying a Business From An Administrator In The UK
- Top 5 Tips For Buying a Business In Administration In The UK?
- 1) Do Your Research
- 2) Get Professional Advice
- 3) Consider Your Financing Options
- 4) Negotiate terms
- 5) Exchange Contracts
- Top 9 Things To Be Aware Of When Buying a Business In Administration
- 1) Intellectual Property (IP)
- 2) Potential Liabilities
- 3) The Business May Not Be Worth The Asking Price
- 4) The Business May Not Be Profitable
- 5) The Administrators May Not Be Able To Answer All Of Your Questions
- 6) You May Not Be Able To Get a Loan To Buy The Business
- 7) The Business May Not Come With All Of The Necessary Licenses and Permits
- 8) The Business May Have Been Mismanaged
- 9) Employee Contracts
- Is Administration Better Than Liquidation?
- What Is Considered a Distressed Asset?
- Is Administration The Same As Insolvency?
Why Do Businesses Go Into Administration?
The most common reason is financial difficulties, which can be caused by various factors such as poor management, unexpected costs, or falling sales. Other reasons for going into administration include legal problems or operational issues such as difficult trading conditions or the death of a key member of staff.
Once a business has gone into administration, the administrators will assess the situation and decide whether it is possible to rescue the business or if it needs to be wound down. If the business is rescued, this usually involves selling off parts of the company or restructuring its debts. If the business is wound down, this means that all assets are sold off and any remaining money is used to pay creditors.
The decision to go into administration is not easy, and businesses will only do so if they believe it is the best way to protect their interests. However, it is essential to remember that once a company has gone into administration, it is no longer under the control of its owners and they may not be able to get it back.
The control of the business will be handed over to a licensed insolvency practitioner who will be the appointed administrator.
If you are thinking about going into administration, you should seek professional advice before making any decisions.
How Long Can a Business Stay In Administration?
Administrations will typically last 12 months with possible extensions of up to six months with court consent.
The administrator’s objective is to trade the business out of administration, sell it as a going concern or realise assets to repay creditors.
After this time, the administrator will either sell the business as a going concern, or they may realise its assets. If the company cannot be sold or its assets realised, it will be wound up and dissolved.
Administrations are often seen as a way for businesses to buy themselves some time while they restructure and try to become profitable again. Many companies do emerge from administration successfully and go on to trade for many years afterwards.
Buying a Business From An Administrator In The UK
Buying a business in administration can be a great way to get a bargain, but it’s important to do your due diligence first. Here are some things to consider before making an offer.
The first thing you need to consider is the reason why the business has gone into administration. If it’s due to poor management or financial difficulties, then you need to be aware of the risks involved in taking over the business. However, if the business was doing well before it ran into trouble, then there may be some hidden value that you can exploit.
Once you’ve considered the reasons for the administration, you need to look at the business itself and see if it’s something you’re interested in and have the skills to run. Even if a business is in good shape, if you’re not interested in the product or service it offers, then it’s not worth your time and money.
After you’ve decided that the business is something you’re interested in, the next step is to make an offer to the administrator. This can be a tricky process, as you need to offer enough to cover the business’s debts but not so much that you overpay.
Top 5 Tips For Buying a Business In Administration In The UK?
When you are buying a business from an administrator in the UK, there are a few things you need to keep in mind. Here are our top five tips:
1) Do Your Research
Make sure you understand the business and the market it operates in, and look for a profitable niche. This will help you make a more informed decision about whether or not to proceed with the purchase.
2) Get Professional Advice
3) Consider Your Financing Options
Ensure you have the necessary funding in place to complete the purchase. You may need to approach banks or other lenders for finance to ensure you have sufficient funds as they may not loan you the money based on high-risk factors.
4) Negotiate terms
Try to negotiate favourable terms with the administrator, such as a reduced purchase price or extended payment terms.
5) Exchange Contracts
Once you have reached an agreement with the administrator, you will need to exchange contracts. This is a formal legal process which commits you to completing the purchase.
Top 9 Things To Be Aware Of When Buying a Business In Administration
If you’re considering buying a business in administration, there are a few things you need to be aware of. Here are the top ten:
1) Intellectual Property (IP)
You need to be aware that intellectual property (IP) and other intangible assets may not be included in the sale if you’re considering buying a business in administration. This means that you won’t have the rights to any patents, trademarks, or copyrights associated with the company.
2) Potential Liabilities
You also need to be aware of the potential liabilities associated with the business. The administrator will typically only sell the company as a going concern, which means that all liabilities and the company’s creditors will be transferred to the buyer. This includes any debts owed to creditors, contracts, employees or suppliers.
3) The Business May Not Be Worth The Asking Price
You need to be aware that the administrator is looking to sell the business as quickly as possible and may not have time to negotiate a fair price. This means that you could end up paying more for the business than it’s actually worth.
Understand the customer base and complete a diligence process to ensure you reduce the risk involved with buying a company in this state.
4) The Business May Not Be Profitable
You need to be aware that the business may not be profitable, even if it is sold as a going concern. This is because the administrator will typically only sell the business’s assets, which may not be enough to cover all of the liabilities.
You may have to implement a significant cash injection to ensure the company stays afloat after buying a business.
So, if you’re considering buying a business in administration, make sure you’re aware of these potential risks. And always remember to get professional advice before making any decisions.
5) The Administrators May Not Be Able To Answer All Of Your Questions
When you’re considering buying a business in administration, it’s important to be aware that the administrator may not be able to answer all of your questions. This is because they’re typically only responsible for managing the sale of the business and don’t have time to provide detailed information about the business.
6) You May Not Be Able To Get a Loan To Buy The Business
If you’re considering buying a business in administration, you need to be aware that it may be difficult to get a loan to finance the purchase. This is because lenders will typically view businesses in administration as high-risk investments.
7) The Business May Not Come With All Of The Necessary Licenses and Permits
When you’re buying a business in administration, you need to be aware that the business may not come with all of the necessary licenses and permits. This means that you may have to apply for these yourself, which can be a time-consuming and expensive process.
8) The Business May Have Been Mismanaged
If you’re considering buying a business in administration, you need to be aware that the business may have been mismanaged. This means there could be hidden problems that you’re not aware of.
This is a decision that should not be made lightly.
By being aware of the risks involved, you can make an informed decision about whether or not buying a business in administration is right for you.
9) Employee Contracts
If you’re considering buying a business in administration, you need to be aware that employment contracts and employee liabilities are transferrable. This means that the terms of the contracts will bind the new owner.
Is Administration Better Than Liquidation?
It’s a common question asked by business owners when they are facing financial difficulties. The answer is not always clear cut and depends on each unique situation. Here are some things to consider when making the decision:
-The amount of debt owed
-The type of debt owed
-The likelihood of being able to turn the business around
-The impact on employees, suppliers, and other stakeholders
If the business is deeply in debt and there is little chance of turning things around, liquidation may be the best option. This allows for a clean break and can minimize the damage caused by insolvency. However, it also means that creditors will not be paid back and employees will lose their jobs. If there is a possibility of turnaround, administration may be a better option. This gives the business time to restructure and negotiate with creditors. It can also help protect employees’ jobs. However, it is essential to remember that administration is not a long-term solution, and the business will still need to be viable in the future.
What Is Considered a Distressed Asset?
A distressed asset is typically defined as a security or other financial instrument that has been significantly impacted by financial stress. This can include assets in danger of default, already defaulted, or underperforming. Distressed assets often trade at a discount to their intrinsic value due to the increased risk associated with them.
While there is no bright-line definition for what qualifies as a distressed asset, they generally display some combination of the following characteristics:
– High leverage
– Poor liquidity
– Weaker credit quality
– Substantial price decline
– Volatile earnings and cash flow
These assets can be found across all sectors and industries but tend to be concentrated in areas that have been hit hard.
Is Administration The Same As Insolvency?
No, administration is not the same as insolvency. Although both involve financial difficulties, they are different processes with different objectives.
Administration is a process that can be used to help a company restructure and pay its debts. The aim of administration is to allow the company to continue operating and avoid liquidation.
Insolvency is a process used when a company is unable to pay its debts and is facing liquidation. The aim of insolvency is to maximise the return to creditors through the sale of assets.
An insolvent business is one which is unable to pay its debts as and when they fall due.
What Is an Insolvency Practitioner?
An insolvency practitioner is a professional who deals with the financial affairs of people or businesses that are unable to pay their debts.
They are appointed by the court to oversee the process of insolvency and to make sure that creditors are paid as much as possible. Licensed insolvency practitioners must follow certain rules and regulations set out by the government.
Purchasing a business from an administrator can be a great way to get a business at a discounted price. It is important to do your due diligence and research the administrator, the company, and the market before making an offer. With the proper preparation, you can be well on your way to owning a successful business in the UK.
Please be aware of the risks involved before considering this option and take professional advice where necessary.
Let us know what you think below in the comments