Buying another business can be an exciting prospect. For many entrepreneurs, it’s a chance to grow quickly, expand into new areas and take their business to the next level. But while it’s tempting to jump straight in when an opportunity presents itself, it’s important to approach M&A activity with a clear head.

Over the years, I’ve seen plenty of deals that haven’t gone to plan – often not because the business wasn’t a good fit, but because the right steps weren’t taken early on. One area that’s often underestimated is the cost of walking away from a deal, especially if it’s done at the wrong point in the process.

Don’t incur costs too early

Starting with the basics, any deal that involves buying shares in a company will involve some level of legal input. You’ll need a solicitor to draft and review documents, and to give advice around things like warranties and indemnities. That input is essential, but it does come at a cost.

I have frequently seen business owners bringing a solicitor on board straight away, which starts the clock on legal fees, often before they’ve got a clear view of what it is they’re actually buying. Even for smaller deals, it’s a good idea to bring in an accountant and tax adviser with M&A experience early on. They can carry out due diligence and help flag any risks or issues that might affect the value or future performance of the business.

Yes, this does mean additional costs, but it’s about weighing up the cost of doing that work versus the risk of not doing it. For example, I’ve seen cases where a buyer didn’t spot that a target company had been incorrectly filing VAT returns for years. HMRC launched an enquiry after the deal went through, and the new owners ended up with a large VAT bill that could have been avoided with proper diligence. That kind of thing can easily catch people out.

Agree the commercial terms first

Another mistake I see fairly regularly is people engaging advisers and starting the diligence process before they’ve agreed the key commercial terms of the deal. If those terms aren’t nailed down in a Heads of Terms document, there’s a risk of disputes cropping up later, by which time the legal and advisory fees have already been incurred.

It’s frustrating to see deals fall over at a late stage because something that could’ve been sorted early wasn’t. Having clarity on things like price, payment structure and any key conditions right from the start helps avoid that, and it means you’re not spending money before the deal is even properly agreed.

It’s also worth noting that fees relating to M&A activity generally aren’t deductible for tax purposes. Whether the deal completes or not, those costs are treated as capital in nature, not trading expenses. This means you won’t get tax relief on them, even if the deal falls through.

Know when (and why) to walk away

Of course, not every deal is going to go through and that’s fine. Sometimes walking away is the right decision. But ideally, that decision should come as a result of something identified during due diligence, rather than a commercial disagreement that should have been sorted at the start.

If you’ve done the legwork and something comes up that changes your view of the deal, it’s much easier to walk away knowing it was the right call. On the other hand, pulling out late in the process because of an avoidable misunderstanding or misalignment just adds cost and frustration for everyone involved.

What to keep in mind

M&A can be a powerful way to grow your business, but only if it’s approached carefully. Taking the time to do proper due diligence, getting the right advisers involved at the right time, and agreeing the key terms up front can make a big difference in how smoothly the process runs.

Above all, try to keep a level head. It’s easy to get caught up in the excitement of a potential deal, but the best decisions come when you’ve got all the facts in front of you. If the deal isn’t right, it’s okay to walk away. Just make sure it’s for the right reasons, and not because something was missed early on.

Stef Fielding is a tax director at contracting and accounting firm, Sapphire.

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