Buying a business in Texas, or anywhere else, is a significant financial and strategic decision that requires thorough due diligence. Buying an existing business can have many benefits, including existing customers, trained employees, brand recognition, and established operations. However, the process can also be complex and time-consuming.
At the Curley Law Firm, we have spent over a decade helping Texas entrepreneurs achieve their business growth goals. Working with experienced legal counsel, a CPA, and valuation experts is essential to ensure a smooth process, protect your rights, and help you make informed decisions.
Hire a Team of Professionals
Use experienced professionals to help with the purchase and involve them early in the process rather than waiting for problems to arise. Your professional team should include a business attorney, a certified public accountant (CPA), and a valuation expert or appraiser.
A Houston business attorney plays an integral role in facilitating and finalizing the purchase. Your attorney can assist with drafting legal documents, conducting due diligence, reviewing contracts, ensuring legal compliance, negotiating terms, and protecting your interests throughout the transaction.
A CPA can review your personal finances and credit score, analyze the financial status of the business, explain tax implications, and uncover costs associated with the purchase.
A valuation expert will analyze the business to determine its most accurate valuation. Although sellers may provide a valuation, it is always advisable to hire your own expert to confirm the company’s worth.
Do Your Due Diligence
Before purchasing a business, you should conduct thorough due diligence to evaluate the company’s financial health, legal standing, operations, and growth potential.
Understand Why the Business Is for Sale
One of the first questions to ask is why the current owner is selling the business. The answer can provide valuable insight into the company’s condition and future potential.
For example, if the owner is retiring, relocating, or dealing with health concerns, the business may still be healthy and profitable. However, if the owner is selling because of financial problems or industry decline, it may indicate underlying risks.
Review Financial Health and Valuation
You should carefully evaluate the business’s financial records to determine whether the asking price is fair and reasonable.
Request important financial documents such as profit and loss statements, financial statements, cash flow statements, tax returns, debt disclosures, balance sheets, financial projections, and business plans.
You should also determine whether revenues are rising or declining, whether the business has adequate working capital, whether there are outstanding debts or liens, whether accounts are past due, and how the business has been valued previously. Thoroughly reviewing these records can help identify red flags, inconsistencies, or missing information before agreeing to the purchase.
Analyze the Industry and Market
Conduct a thorough analysis of the industry and market conditions in Texas. Understand industry trends, competition, growth potential, customer retention rates, and whether demand for the company’s products or services is expanding or contracting. A loyal and diverse customer base can indicate that the business holds a strong market position.
Review Assets Included in the Sale
Before purchasing a business, understand exactly which assets are included in the transaction.
Questions to ask include whether the business owns intellectual property, whether those rights will transfer with the sale, whether real estate is included, whether the business leases or owns its locations, whether leases or mortgages can be assumed, whether equipment is leased or owned, and whether permits, licenses, and certifications are transferable. Understanding included and excluded assets will help determine the company’s overall value.
Confirm Legal and Regulatory Compliance
Ensure the business complies with all applicable laws, regulations, permits, and licenses.
Review existing contracts, lease agreements, employment agreements, pending legal disputes, and regulatory compliance requirements. You should also research public records and verify the company’s registration with the Texas Secretary of State.
Evaluate Intellectual Property
Identify and evaluate trademarks, copyrights, patents, and other intellectual property assets that contribute to the company’s value. Ensure those assets have proper legal protection.
Analyze Supplier and Vendor Relationships
Review the company’s supplier and vendor relationships to understand the supply chain and identify potential risks.
If the company depends heavily on a small number of suppliers, evaluate how disruptions to those suppliers could impact operations.
Inspect the Business Operations
Physically inspect the premises, inventory, furniture, fixtures, equipment, and daily operations. Assess the company’s reputation, customer relationships, and operational efficiency.
Financing the Purchase
Securing financing is a critical step in purchasing a business. Financing options may include small business bank loans, SBA loans, seller financing, credit cards, non-profit lenders, angel investors, crowdfunding, HELOCs, and personal or online business loans. Getting pre-approved for financing can make you a more attractive buyer and demonstrate to the seller that you are serious and financially qualified. The Texas Governor’s Office of Small Business Assistance may also provide information on financing resources and partners.
Sign a Letter of Intent
A letter of intent (LOI) is a non-binding agreement outlining the essential terms and conditions of the sale.
An LOI helps move negotiations forward while still allowing flexibility for either party to walk away before the final agreement is signed.
Negotiate the Purchase Agreement
Carefully negotiate the terms of the purchase agreement, including the purchase price, payment structure, non-compete clauses, warranties and representations, and asset and liability allocation. An experienced business attorney can help ensure that the agreement is well-drafted and protects your interests.
Develop a Transition Plan
A smooth ownership transition is essential to maintaining business continuity.
Employee and Management Transition
Assess the current employees and management team to determine whether they intend to stay after the transition, whether additional hiring or training is necessary, and whether new employment or non-solicitation agreements are needed.
Ownership Transfer Plan
Work with the seller to create a transfer plan that minimizes disruption to business operations. In some cases, sellers may agree to remain temporarily involved during the transition period.
Create Contingency Plans
Buying a business is a complex process that may require multiple strategies and backup plans. Seeking professional advice can help you mitigate risks and adapt to unexpected challenges.
The Curley Law Firm Can Help
For assistance with buying a business in Texas or Houston, contact the Curley Law Firm. Lead attorney Adam Curley has over a decade of experience helping clients navigate business acquisitions, due diligence, financing, negotiations, letters of intent, and closing transactions.
Adam takes pride in providing personalized service and building strong relationships with clients while helping them achieve long-term business success. Contact the Curley Law Firm today to schedule a consultation.