How to Make an Offer and Negotiate When Buying a Business in the UK

You've found a business you want to buy. You've read the financials, visited the premises, and decided this is the one. Now comes the part most first-time buyers are least prepared for: making an offer and actually negotiating the deal.

The offer stage is about more than price. Structure, timing, terms, the relationship you build with someone who still cares about what happens to the business they spent years running. Get the offer right and you set up a smooth acquisition. Get it wrong and you overpay, lose the deal to a better-prepared buyer, or create the conditions for a transaction that collapses three months into due diligence.

This guide covers the full process: what to put in a Letter of Intent, how to negotiate based on facts rather than emotion, how to read a seller's real priorities, and when walking away is the right call.

Before you make any offer, you need solid numbers to stand behind. If you haven't already worked through a thorough financial analysis, read the guide to analysing a business before buying. Your offer is only as credible as the research underneath it.

A Letter of Intent (LOI), also called heads of terms in the UK, is the document that formalises your interest and kicks off the serious phase of a deal. It is typically non-binding, though certain clauses (exclusivity, confidentiality, break fees) are binding.

Think of it as a structured handshake. You're not legally committed to buying yet, and the seller isn't legally committed to selling. But you have both put your cards on the table (price, structure, conditions) and agreed to proceed on that basis while due diligence happens.

Writing a vague or incomplete LOI is one of the most common mistakes first-time buyers make. A sharp LOI signals that you're a serious, informed buyer. A woolly one signals the opposite.

What a strong LOI covers

Component	What to specify
Purchase price	The headline figure and how it's calculated (e.g., 4.5x normalised EBITDA)
Deal structure	Share sale or asset sale (significant tax implications for both parties)
Payment terms	How much is paid at completion, what's deferred, any earn-out structure
Conditions	Satisfactory due diligence, financing approval, key staff retention
Seller involvement post-sale	Handover period length, role, and whether it's paid
Exclusivity	Period during which the seller won't speak to other buyers
Target timeline	Expected completion date and key milestones
Confidentiality	Confirming both parties' obligations

Letter of Intent vs Heads of Terms: what is the difference in the UK?

In practice, the terms are interchangeable. 'Letter of Intent' is more common in cross-border deals and when US-influenced advisers are involved. 'Heads of terms' or 'heads of agreement' is the traditional UK phrasing. The legal effect is identical: a non-binding framework document with certain binding clauses. Some solicitors prefer one label over the other, but the content matters far more than the name.

Is a Letter of Intent legally binding?

Mostly not. But the binding clauses inside it are real obligations. Exclusivity clauses prevent the seller from speaking to other buyers. Confidentiality clauses restrict what both parties can disclose. Break fee clauses can impose financial penalties if either side walks away without cause. The non-binding sections (price, structure, conditions) become binding only when they are incorporated into the final Sale and Purchase Agreement.

On deal structure: share sales and asset sales work very differently for tax purposes. Sellers usually prefer share sales because they can benefit from Capital Gains Tax treatment, potentially including Business Asset Disposal Relief. Buyers sometimes prefer asset sales to avoid inheriting unknown liabilities. Your solicitor needs to advise on the implications before you commit to either in writing.

For external reference, the Law Society's guidance on business purchases sets out the legal framework, worth reading before you finalise your LOI.

Your offer price shouldn't come from a hunch. It should come from financial analysis, market data, and a clear view of risk.

Most UK SME acquisitions are priced on an EBITDA multiple basis. You calculate the business's normalised EBITDA (earnings before interest, taxes, depreciation, and amortisation, adjusted for owner-specific costs and one-off items) then apply a multiple based on the sector, size, and quality of the business. The average UK mid-market multiple sits around 5x to 6x, but the range is wide. A software business with recurring revenue might attract 8x or more. A traditional service business with one dominant customer might struggle past 3x.

For a detailed breakdown of how UK valuations work and what drives multiples, the guide to valuing a business in the UK covers the full methodology.

What should move your offer price

These factors justify a lower offer. Use them as anchors in negotiation:

• Customer concentration above 25% of revenue in one customer
• Owner-dependent relationships not documented or transferable
• Declining revenue trend over the past 12-18 months
• Unresolved legal issues, disputes, or regulatory matters
• Lease with fewer than two years remaining
• Key staff who may not stay post-sale

These factors justify paying at or above the asking price:

• Strong recurring revenue with long contract terms
• Proven management team who'll stay after the sale
• Growing sector with clear tailwinds
• Proprietary systems, IP, or processes that are difficult to replicate
• Clean financials with three years of audited accounts

Be specific about your adjustments. "We think the business is worth £800,000 rather than £1m because the top customer accounts for 40% of revenue and has been on a month-to-month contract since 2024" is a negotiating position. "We think the price is too high" is not.

Business acquisition negotiation isn't like haggling over a car. You're negotiating with someone who has probably spent years building this business, and the relationship you build during the process matters long after the deal closes.

Negotiate on facts, not positions

The strongest negotiators anchor every position to something verifiable. Instead of "we're offering £900,000," say "based on normalised EBITDA of £180,000 and a 5x multiple appropriate for this sector and customer concentration, our offer is £900,000." That's a position a seller can engage with rationally, not just accept or reject emotionally.

When a seller pushes back on price, ask for their basis. "What multiple are you expecting?" or "How are you calculating normalised EBITDA?" These questions often reveal misalignments in methodology rather than genuine price disagreements, and those are much easier to resolve.

Understand what the seller actually wants

Price is rarely the only thing that matters to a seller. Most sellers have at least one priority that matters as much as the headline number. Sometimes more.

Common seller priorities beyond price:

• Staff are protected and jobs are secure
• The business retains its identity and isn't just absorbed into a larger group
• A smooth transition that doesn't disrupt customers
• The seller's legacy is respected (they're proud of what they built)
• A clean break rather than an extended earn-out tied to targets they can't control

Ask directly: "What's most important to you in this deal beyond the price?" You'll get useful information, and the seller will appreciate being asked.

Maintain goodwill throughout

Deals fall through for reasons that have nothing to do with price. A seller who dislikes the buyer, who feels disrespected, or who loses confidence during negotiations will find reasons to pull back. Sometimes the reasons are manufactured. They are looking for an excuse to exit a deal they have gone cold on.

Be punctual. Respond to information requests quickly. Don't make aggressive moves late in the process. If you find an issue during due diligence that changes your position, raise it directly and professionally rather than using it as a gotcha moment.

Earn-outs are common in UK business acquisitions, especially when there's a gap between what the buyer thinks the business is worth and what the seller believes they deserve. The principle: part of the purchase price is paid after completion, contingent on the business hitting agreed performance targets.

They sound reasonable. In practice, they're one of the most contested parts of any acquisition.

Why earn-outs go wrong

The problem is control. Once you have bought the business, you make the decisions. Staffing, pricing, investment, which customers to prioritise. If those decisions affect whether the seller hits their earn-out targets, you have a structural conflict. The seller feels you're making decisions that deliberately reduce their payout. You feel you're running the business sensibly. Both of you might be right.

Before agreeing to any earn-out as a buyer, get clear on four things. How is the performance metric defined? Revenue, EBITDA, and gross profit can each be manipulated in ways that disadvantage the seller, which creates ongoing dispute risk. Who controls the decisions that affect the metric? If you can shift costs between divisions, change pricing strategy, or bring in intercompany charges after completion, the seller's earn-out is vulnerable. What is the measurement period? One year, two, three? Longer periods increase risk for both parties. And what happens if the business is sold or merged during the earn-out period?

If you're offering an earn-out to bridge a price gap, make the targets clearly achievable on the current trajectory and define them with precise, auditable metrics. A seller's solicitor will push back hard on any earn-out they see as unfair. Rightly so.

Earn-out vs deferred consideration: which is better?

Deferred consideration without conditions (simply paying part of the price six or twelve months after completion) is cleaner and less contentious. The seller gets certainty on the total amount; you get time to fund the balance from the business's own cash flow. It's worth offering as an alternative to a performance-based earn-out if the seller is concerned about cash flow but you want to avoid the complexity of targets and measurement periods.

Once a seller agrees to your LOI, you typically enter an exclusivity period. This is a window during which they agree not to talk to other buyers while you complete due diligence. This protects you from spending weeks and significant legal and advisory fees investigating a business only to find the seller has sold it to someone else.

The standard exclusivity period in UK deals is six to twelve weeks. Sellers want it short (they lose optionality); buyers want it long enough to complete proper due diligence.

Here's where most buyers miscalculate: exclusivity is a lever for the seller, not just a formality for the buyer. A seller who grants you eight weeks of exclusivity is making a meaningful concession. Don't waste it. Have your solicitor ready, your due diligence checklist prepared, and your accountant briefed before you enter exclusivity.

Why momentum matters

Deals that lose momentum die. A process that drags on for six months because the buyer was slow to respond to information requests, slow to instruct their solicitor, or slow to make decisions gives the seller time to develop cold feet, get approached by other parties (despite the exclusivity clause), or simply change their mind.

Set internal deadlines and stick to them. If you say you'll respond to the seller's data room submissions within five working days, do it. If you need an extension on the exclusivity period, ask for it with a clear explanation. Don't just let the clock run out and expect the seller to wait.

Browse businesses currently available on NewOwner to see how deals are typically structured and what information sellers make available at the initial stage.

Walking away from a deal is harder than most first-time buyers expect. You've spent weeks researching, negotiating, and building a picture of what your life looks like running this business. Sunk cost is real and so is the emotional investment.

But the ability to walk away is also your most powerful negotiating tool. If you can't genuinely contemplate walking away, you'll overpay, accept terms you shouldn't, and potentially buy a business that isn't right for you.

Legitimate reasons to walk away

• Due diligence reveals material issues that were not disclosed upfront, particularly anything that suggests the seller was not transparent
• Financial performance during the deal period deteriorates significantly (this happens; businesses change while deals are in progress)
• The seller refuses to adjust price or terms in response to findings that objectively reduce the business's value
• Key staff indicate they won't stay post-sale, and their departure would materially affect the business
• Financing falls through and can't be restructured
• Your own circumstances change

How to walk away without burning the relationship

Be direct and professional. Explain the specific reason you're not proceeding. If it's a due diligence finding, share it clearly. The seller needs to understand what stopped the deal if they're going to address it for the next buyer.

Don't ghost. Don't send a brief email and disappear. A seller who's spent months in a process with you deserves a clear explanation. Beyond common decency, business communities in the UK are smaller than you think. Your reputation as a buyer matters.

Walking away from the right deal at the wrong price, then returning later with a revised position, does happen. It works occasionally. But only if you've been professional throughout the process and the seller still trusts you.

For a full picture of what you're taking on when you buy, review the business buyer starter kit. It covers the full acquisition journey from first search through to post-completion integration.

You need professional advice during a business acquisition. That's not optional. But how you use your advisers during negotiation matters as much as which advisers you choose.

Your solicitor's role in negotiation

Your solicitor should review the LOI before you sign it, draft or review the sale and purchase agreement (SPA), and advise on warranties, indemnities, and restrictive covenants. What they shouldn't do is negotiate commercial terms on your behalf.

Lawyers can slow deals down when they get involved in commercial discussions that should stay between the principals. The price, the earn-out structure, the handover period, the seller's ongoing role. Those are your conversations to have with the seller. Get the commercial terms agreed, then let the solicitors translate them into legal language.

Accountants and financial due diligence

A specialist accountant should review the financials, validate the normalised EBITDA calculation, assess working capital requirements, and identify any tax risks in the current business structure. Their findings will either support your offer price or give you grounds to renegotiate.

HMRC guidance on stamp duty and tax treatment for business purchases is worth reviewing with your accountant before completion, as the structure of your deal affects both immediate tax liabilities and ongoing obligations.

Business advisers and brokers

If the seller is working through a broker or corporate finance adviser, you're negotiating with both the seller and their representative. That is not necessarily a bad thing. Experienced advisers on both sides tend to make deals happen faster because they understand the process and can bridge gaps that the principals get stuck on.

That said, be aware that the seller's adviser has one job: to get the best outcome for their client. Don't share your walk-away position, your maximum price, or your financing constraints with the seller's adviser. Keep those conversations internal.

The full timeline from LOI to completion in a typical UK SME deal runs 12 to 20 weeks. Budget for it properly. Advisory fees for buyers typically run £5,000 to £25,000 depending on deal size and complexity, on top of solicitor costs.

When negotiating a business purchase in the UK, you will encounter legal and financial terminology that directly affects your obligations and risk. Here are the terms that matter most.

Sale and Purchase Agreement (SPA)

The SPA is the definitive legal document that governs the entire transaction. It replaces the LOI and contains the final agreed price, payment terms, warranties, indemnities, restrictive covenants, and completion mechanics. Everything that was outlined loosely in the heads of terms becomes legally binding once both parties sign the SPA.

Warranties and indemnities

Warranties are statements of fact made by the seller about the business. For example, that the accounts are accurate, that there are no undisclosed liabilities, or that all contracts are valid and transferable. If a warranty turns out to be false, the buyer has a claim for damages. Indemnities go further. They are promises to compensate the buyer pound for pound for specific risks, like an outstanding tax dispute or a pending legal claim.

Buyers want broad warranties and specific indemnities. Sellers want to limit both. This negotiation is where solicitors earn their fees.

Completion accounts vs locked box

Two mechanisms for determining the final purchase price:

Mechanism	How it works	Best for
Completion accounts	Price adjusts based on the business's actual financial position at the date of completion	Buyers who want protection against deterioration between signing and closing
Locked box	Price is fixed at a reference date before signing; no post-completion adjustments	Sellers who want price certainty; faster, cleaner closings

Restrictive covenants

Clauses that prevent the seller from competing with the business, soliciting its customers, or poaching its staff for a defined period after the sale — typically 12 to 24 months in UK deals. Without these, you risk paying for a business whose customers follow the former owner to a new venture.

Working capital adjustment

Most SPAs include a target level of working capital — the cash, debtors, stock, and creditors that the business needs to operate day to day. If the actual working capital at completion is below the target, the price reduces. If it is above, the price increases. Agreeing the target figure and measurement methodology is a common negotiation point.

Here is how a negotiating position might look in practice for a typical UK SME acquisition.

The business

A professional services firm based in the Midlands. Annual revenue £1.2m. Normalised EBITDA £185,000 after adjusting for the owner's above-market salary and personal car lease. Three-year revenue trend is flat. Top customer accounts for 22% of revenue. The owner wants to retire within six months and is motivated to sell.

The offer structure

Component	Detail
Headline price	£740,000 (4.0x normalised EBITDA)
Payment at completion	£555,000 (75%)
Deferred consideration	£110,000 paid in two equal instalments at 6 and 12 months
Earn-out	£75,000 contingent on revenue exceeding £1.1m in the 12 months post-completion
Deal structure	Asset sale — buyer acquires customer contracts, brand, equipment, and stock
Seller involvement	12-week paid handover at £2,000/week, followed by 6-month consultancy retainer at £500/month
Exclusivity	10 weeks from signing the LOI
Conditions	Satisfactory financial and legal due diligence; key account manager agrees to stay for 12 months

Why this works

The 4.0x multiple reflects the flat revenue trend and moderate customer concentration. The 75/25 split between completion and deferred payments gives the buyer cash flow protection during the transition. The earn-out is small enough to be manageable but gives the seller upside if the business performs. The handover period is long enough for genuine knowledge transfer. The condition about the key account manager protects the buyer against the highest single-customer risk.

Sellers and their advisers take this kind of offer seriously because it shows you have done the work. Compare that to the buyer who emails 'I'd like to offer £650k' with no context, no structure, and no explanation. Which one would you respond to?

Browse businesses for sale on NewOwner when you are ready to put together your own.