{"id":180082,"date":"2023-03-19T14:49:26","date_gmt":"2023-03-19T14:49:26","guid":{"rendered":"https:\/\/legalvision.co.uk\/?p=180082"},"modified":"2023-03-30T01:05:32","modified_gmt":"2023-03-30T00:05:32","slug":"sale-of-business-as-a-going-concern","status":"publish","type":"post","link":"https:\/\/legalvision.co.uk\/business-sale-purchase\/sale-of-business-as-a-going-concern\/","title":{"rendered":"What Is a Sale of a Business as a Going Concern"},"content":{"rendered":"<p><span style=\"font-weight: 400\">There are various types of business sale in the UK. A sale of a business as a \u2018going concern\u2019 describes a business whose management is confident that it can continue running for at least 12 months. As such, the going concern test is an essential one that all businesses looking for a buyer need to pass. This article will unpack what going concern means in practice.\u00a0<\/span><\/p>\n<h2><span style=\"font-weight: 400\">Overview<\/span><\/h2>\n<p><span style=\"font-weight: 400\">Most buyers expect to purchase a target business as a going concern. The exception is for distressed businesses that are bought with the intention of dividing up their assets and selling them off. Otherwise, a target business needs to demonstrate it can operate for the next 12 months (and more).\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400\">From the buyer\u2019s perspective, a going concern business indicates that it:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">has the finances to continue trading for at least 12 months;<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">is unlikely to face any insolvency proceedings in the near future; and<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">has the financial records demonstrating its solvency over the next year.<\/span><\/li>\n<\/ul>\n<h2><span style=\"font-weight: 400\">Obtaining \u2018Going Concern\u2019 Certification<\/span><\/h2>\n<p><span style=\"font-weight: 400\">As you may expect, a business\u2019s seller cannot just label its business as a going concern when it is, in fact, not.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400\">Instead, the business owner should carry out a going concern assessment.\u00a0 Going concern assessments explore all aspects of a company\u2019s finances but tend to focus on the following points in particular:<\/span><\/p>\n<ol>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">the figures within the company\u2019s balance sheet and financial statements;<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">continuous cash flow figures;<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">any profitable and ongoing contracts with clients or consumers;<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">the value of any business assets;<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">any long-term instalment plans with third parties (for example, business rent or bills); and<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">whether the company is facing or is likely to be involved in any expensive legal action.<\/span><\/li>\n<\/ol>\n<p><span style=\"font-weight: 400\">Small to medium-sized enterprises (SMEs) usually conduct their own going concern assessments, usually with the help of an accountant. Larger businesses are more likely to use auditors. This is due to both regulatory obligations as well as the complexity involved in certifying the accounts of large businesses.<\/span><\/p>\n    <div class=\"my-7 lg:my-10 border-y-2 border-gray-100 py-7 lg:py-10 flex flex-col sm:flex-row items-start gap-10\">\n                    <img decoding=\"async\" class=\"w-52 mx-auto my-0! rounded\" src=\"https:\/\/img.legalvision.com.au\/wp-content\/uploads\/sites\/4\/2023\/01\/13013547\/buying-a-business-560x792-1.jpg\" alt=\"Front page of publication\"\n                 loading=\"lazy\" width=\"208\" height=\"298\">\n                <section>\n            <div class=\"text-2xl font-bold\">Buying a Business: Guide to Negotiating Terms<\/div>\n            <div class=\"body-text\">\n                <p>Buying a business? 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       } else {            triggerPostRender();        }    } );} );\n<\/script>\n<\/div>\n<\/div>\n<div id=\"content-next\"><!-- scroll anchor --><\/div>\n<h2><span style=\"font-weight: 400\">Effect of a Sale as a Going Concern<\/span><\/h2>\n<p><span style=\"font-weight: 400\">Usually, a sale as a \u2018going concern\u2019 is one in which the new owner intends to acquire the company and keep it trading similarly.\u00a0 Because of this, nearly every going concern business sale includes substantially all of the business:<\/span><\/p>\n<ol>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">equipment, property and machinery;<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">trade secrets, branding, trademarks and Intellectual Property (IP);<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">rights to land (including commercial leases and rental periods);<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">details of every client, contact and supplier; and<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">the continuous employment of every staff member as of the point of business transfer.<\/span><\/li>\n<\/ol>\n<p><span style=\"font-weight: 400\">In any event, the buyer should instruct a team of legal and financial advisers to review the sale documentation.\u00a0<\/span><\/p>\n<h2><span style=\"font-weight: 400\">How Much of a Guarantee Does a \u2018Going Concern\u2019 Moniker Offer?<\/span><\/h2>\n<p><span style=\"font-weight: 400\">Because prospective purchasers are unlikely to consider a target business without a going concern certification, it is more of a formality than anything else. For context, most companies must certify their annual accounts on a going concern basis. Despite this, most companies that end up in insolvency proceedings reported themselves as going concerns in the 12 months before.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400\">Therefore, <\/span><a href=\"https:\/\/legalvision.co.uk\/business-sale-purchase\/due-diligence-business-purchase\/\"><span style=\"font-weight: 400\">the buyer should carry out due diligence<\/span><\/a><span style=\"font-weight: 400\"> to determine for itself the financial state of the business. This involves reviewing and considering the documents mentioned within the going concern assessment. Naturally, many prospective purchasers will ask an account or financial expert to evaluate the accuracy of a going concern assessment.<\/span><\/p>\n<p><span style=\"font-weight: 400\">Another relevant consideration is <\/span><i><span style=\"font-weight: 400\">when<\/span><\/i><span style=\"font-weight: 400\"> they carried out the going concern assessment. It would not be of little value to potential buyers if performed a year (or more) earlier.\u00a0\u00a0<\/span><\/p>\n<h2><span style=\"font-weight: 400\">Key Takeaways<\/span><\/h2>\n<p><span style=\"font-weight: 400\">Most prospective business purchasers will treat a \u2018going concern\u2019 label as a necessary formality. This moniker usually indicates that the company is in good financial health and will continue to trade for the next year. That said, sellers may not have employed the best accounting methodology when forecasting their business\u2019s performance. Accordingly, most potential purchasers will instruct expert lawyers and financial advisors to review the company\u2019s finances before the purchase.<\/span><\/p>\n<p><span style=\"font-weight: 400\">If you need assistance with a company sale or purchase as a \u2018going concern\u2019, our experienced<\/span> <a href=\"https:\/\/legalvision.co.uk\/business-sale-purchase-lawyers-lp\/\"><span style=\"font-weight: 400\">business sale lawyers<\/span><\/a><span style=\"font-weight: 400\"> can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on <a href=\"tel:+448081968584\" class=\"AVANSERnumber dynamic-number\">0808 196 8584<\/a> or visit our <\/span><a href=\"https:\/\/legalvision.co.uk\/membership\/\"><span style=\"font-weight: 400\">membership page<\/span><\/a><span style=\"font-weight: 400\">.\u00a0<\/span><\/p>\n<h2><span style=\"font-weight: 400\">Frequently Asked Questions<\/span><\/h2>\n\n\n<div class=\"schema-faq wp-block-yoast-faq-block\"><div class=\"schema-faq-section\" id=\"faq-question-1679237066355\"><strong class=\"schema-faq-question\"><strong>Can a business purchaser sue the seller if it goes insolvent within 12 months?<\/strong><\/strong> <p class=\"schema-faq-answer\">Not usually, no.\u00a0 The only usual way a purchaser can claim monies for loss caused through a sale is when the documentation provided for due diligence is false or misleading.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1679237072113\"><strong class=\"schema-faq-question\"><strong>Should a prospective purchaser do less due diligence on a \u2018going concern\u2019 business?<\/strong><\/strong> <p class=\"schema-faq-answer\">No, any individual wishing to purchase a UK company should carry out the same level of due diligence regardless of its description.\u00a0 After all, any seller can use persuasive words, but the actual proof of financial health lies within the company\u2019s financial reporting documents.<\/p> <\/div> <\/div>\n<div class=\"not-prose m-feedback-prompt\">\n    <!-- Thumbs up\/down bar -->\n    <div class=\"m-feedback-prompt__main\">\n        <div class=\"m-feedback-prompt__title\">Was this article helpful?<\/div>\n        <div>\n            <!--span class=\"m-feedback-prompt__button--text\">Thanks!<\/span-->\n            <button type=\"button\" class=\"m-feedback-prompt__button m-feedback-prompt__button--yes\"\n                    data-analytics-link=\"feedback-prompt:yes\" aria-label=\"Agree\">\n                <i class=\"fa-regular fa-thumbs-up fa-3x\"><\/i>\n            <\/button>\n            <button type=\"button\" class=\"m-feedback-prompt__button m-feedback-prompt__button--no\"\n                    data-analytics-link=\"feedback-prompt:no\" aria-label=\"Disagree\">\n                <i class=\"fa-regular fa-thumbs-down fa-3x\"><\/i>\n            <\/button>\n        <\/div>\n    <\/div>\n\n    <!-- Feedback form -->\n    <div class=\"m-feedback-prompt__form\">\n        <div class=\"m-feedback-prompt__form--thanks \">\n            <div>Thanks!<\/div>\n            <p>\n                We appreciate your feedback \u2013 your submission has been successfully received.            <\/p>\n        <\/div>\n        <form id=\"contact-form\" class=\"m-feedback-prompt__form--form\" action=\"\" method=\"post\">\n            <input type=\"hidden\" id=\"authenticity_token\" name=\"authenticity_token\" value=\"4d339a24e7\" \/><input type=\"hidden\" name=\"_wp_http_referer\" value=\"\/api\/wp\/v2\/posts\/180082\" \/>            <input value=\"https:\/\/legalvision.co.uk\/business-sale-purchase\/sale-of-business-as-a-going-concern\/\" type=\"hidden\" name=\"currenturl\"\n                   id=\"currenturl\">\n            <input value=\"What Is a Sale of a Business as a Going Concern\" type=\"hidden\" name=\"currenttitle\"\n                   id=\"currenttitle\">\n            <label>\n                <!-- display on thumbs-up -->\n                <span class=\"m-feedback-prompt__feedback m-feedback-prompt__feedback--yes\">\n                    Can you tell us <span class=\"font-semibold\">why<\/span> you found it helpful?\n                <\/span>\n\n                <!-- display on thumbs-down -->\n                <span class=\"m-feedback-prompt__feedback m-feedback-prompt__feedback--no text-lg\">\n                    How can we better improve this article?\n                <\/span>\n                <textarea name=\"feedbackmessage\" id=\"feedbackmessage\" required><\/textarea>\n            <\/label>\n\n            <div class=\"m-feedback-prompt__form--error\" id=\"form-submit-error\"><\/div>\n            <button id=\"submit-contact-form-button\" type=\"submit\" name=\"commit\" class=\"m-feedback-prompt__form--submit\"\n                    data-analytics-link=\"feedback-prompt:submit\">\n                Submit            <\/button>\n        <\/form>\n    <\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>There are various types of business sale in the UK. A sale of a business as a \u2018going concern\u2019 describes a business whose management is confident that it can continue running for at least 12 months. As such, the going concern test is an essential one that all businesses looking for a buyer need to<a href=\"https:\/\/legalvision.co.uk\/business-sale-purchase\/sale-of-business-as-a-going-concern\/\">Continue reading <span class=\"sr-only\">&#8220;What Is a Sale of a Business as a Going Concern&#8221;<\/span><\/a><\/p>\n","protected":false},"author":13349,"featured_media":617,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_relevanssi_hide_post":"","_relevanssi_hide_content":"","_relevanssi_pin_for_all":"","_relevanssi_pin_keywords":"","_relevanssi_unpin_keywords":"","_relevanssi_related_keywords":"","_relevanssi_related_include_ids":"","_relevanssi_related_exclude_ids":"","_relevanssi_related_no_append":"","_relevanssi_related_not_related":"","_relevanssi_related_posts":"1471,3269,3272,179197,2382,4054","_relevanssi_noindex_reason":"","editor_notices":[],"footnotes":""},"categories":[29],"tags":[21,293,834,1277],"class_list":["post-180082","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business-sale-purchase","tag-medium-business","tag-business-purchase","tag-business-sale","tag-going-concern-basis"],"acf":[],"yoast_head":"<!-- This site is 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He has particular expertise in Commercial and Employment litigation, as well as data protection and privacy regulations. He is a qualified Solicitor in England and Wales and has a decade of legal experience, including advocacy within civil courts and Tribunals. Tom specialises in civil and employment litigation. He has extensive experience in advising employers and companies as to the requirements of employment law and data protection rules, as well as day-to-day advice on smooth running from a commercial perspective. Qualifications: Professional Skills Course - Law, University of Law; Legal Practice Course - Law, College of Law; Bachelor of Laws, University of Southampton.","sameAs":["https:\/\/www.linkedin.com\/in\/tom-sutherland-72b4509b\/"],"url":"https:\/\/legalvision.co.uk\/author\/thomassutherland\/"},{"@type":"Question","@id":"https:\/\/legalvision.co.uk\/business-sale-purchase\/sale-of-business-as-a-going-concern\/#faq-question-1679237066355","name":"Can a business purchaser sue the seller if it goes insolvent within 12 months?","acceptedAnswer":{"@type":"Answer","text":"Not usually, no.\u00a0 The only usual way a purchaser can claim monies for loss caused through a sale is when the documentation provided for due diligence is false or misleading.","inLanguage":"en-GB"},"inLanguage":"en-GB"},{"@type":"Question","@id":"https:\/\/legalvision.co.uk\/business-sale-purchase\/sale-of-business-as-a-going-concern\/#faq-question-1679237072113","name":"Should a prospective purchaser do less due diligence on a \u2018going concern\u2019 business?","acceptedAnswer":{"@type":"Answer","text":"No, any individual wishing to purchase a UK company should carry out the same level of due diligence regardless of its description.\u00a0 After all, any seller can use persuasive words, but the actual proof of financial health lies within the company\u2019s financial reporting documents.","inLanguage":"en-GB"},"inLanguage":"en-GB"}]}},"_links":{"self":[{"href":"https:\/\/legalvision.co.uk\/api\/wp\/v2\/posts\/180082","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/legalvision.co.uk\/api\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/legalvision.co.uk\/api\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/legalvision.co.uk\/api\/wp\/v2\/users\/13349"}],"replies":[{"embeddable":true,"href":"https:\/\/legalvision.co.uk\/api\/wp\/v2\/comments?post=180082"}],"version-history":[{"count":4,"href":"https:\/\/legalvision.co.uk\/api\/wp\/v2\/posts\/180082\/revisions"}],"predecessor-version":[{"id":180225,"href":"https:\/\/legalvision.co.uk\/api\/wp\/v2\/posts\/180082\/revisions\/180225"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/legalvision.co.uk\/api\/wp\/v2\/media\/617"}],"wp:attachment":[{"href":"https:\/\/legalvision.co.uk\/api\/wp\/v2\/media?parent=180082"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/legalvision.co.uk\/api\/wp\/v2\/categories?post=180082"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/legalvision.co.uk\/api\/wp\/v2\/tags?post=180082"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}