Buying a business is a huge investment, regardless of the company’s size or the industry. In addition to the time, research, and paperwork that go into the purchase, there are costs and financial risks involved.
For an entrepreneur, however, the benefits of buying a business may outweigh the disadvantages.
The company will often already have brand recognition, existing customers, a solid supply chain, a website, trained employees, and hopefully a strong financial history. Here are some tips for buying a business in Texas.
Hire a Team of Professionals
Use experienced professionals to help with the purchase. It is best to involve them early in the process and not wait until an issue arises.
Your team of professionals should include a business attorney, a certified public accountant (CPA), and a valuation expert or appraiser.
A Houston business attorney serves an integral role in facilitating and finalizing the purchase. Make sure the lawyer you hire has experience with buying and selling businesses.
Your attorney will assist with various tasks, including drafting the necessary legal documents, gathering information during the due diligence process, reviewing any of the seller’s existing business contracts, and ensuring the company’s legal compliance.
A CPA is involved throughout every stage of buying a business. Before any negotiations, your CPA can review your personal finances and credit score to help determine what loans you may qualify for and if you can afford the purchase.
Your CPA will then analyze the financial status of the business, explain the tax implications of the transaction, and uncover all costs associated with the purchase.
The business’s value is the crux of the transaction. It is what negotiations are centered around to reach a final purchase price. A valuation expert will dive into the details of the business to determine the most accurate valuation.
Sellers will provide a business valuation, but you should always hire your own valuation expert to appraise the company and confirm what the seller quotes.
Research and Prepare
Doing your research on the company will benefit you in the short and long term. Not only will you be better equipped to negotiate, but you position yourself as a more attractive buyer.
Learn Why the Business Is for Sale
Talk to the seller about why he or she is leaving the business. Your next steps will look very different if the seller is retiring versus selling the company because it is facing bankruptcy.
Do Preliminary Due Diligence
Before engaging in any negotiations, start your own due diligence process. Investigate the company’s history by looking at public records available through city or county offices.
Often you can find out how long the company has been in business, who the past owners are, and if the company has met its reporting requirements. The Texas Secretary of State Office provides registration information for businesses in Texas.
Find out what Texas business licenses and permits are required for the company to operate. There may be city, county, and state legal requirements to satisfy, so thoroughly research each.
Physically inspect the business, including the premises, furniture, fixtures, equipment, and inventory.
Do not be afraid to ask the seller for the business’s financial information. Save yourself time and money and determine if the company is even financially viable.
Coming to the table as a pre-approved buyer makes you more attractive to the seller as it shows you are serious about the purchase. No one wants to negotiate a deal, only to discover that the buyer is financially unqualified.
Sign a Letter of Intent
A letter of intent (LOI) is a non-binding agreement between the buyer and seller that includes essential terms and conditions of the sale and outlines both parties’ obligations.
An LOI is beneficial because it takes the negotiations to the next phase and sets the stage for the final purchase and sale agreement, yet provides the flexibility for either party to walk away.
Financing the Purchase
There are many ways to finance the purchase of a business. Some options include a cash purchase with personal or investor funds, seller financing, a bank or credit union loan, a small business association (SBA) government-backed loan, a home equity line of credit (HELOC), and online business or personal loans.
Financing the purchase of the business may be more beneficial than making a cash offer. The bank will conduct its own underwriting and valuation process, so you get a second review of the business to catch any major issues.
Develop Ownership Transfer Plan
Work with the seller to create an ownership transfer plan so as not to disrupt the flow of business. Often, sellers are willing to remain involved with the business operations until an agreed-upon time.
For assistance with buying a business in Texas, contact the Curley Law Firm. Lead attorney Adam Curley has been practicing business law for ten years. He is dedicated to providing you with personalized service based on your needs.
Whether a large company or an aspiring entrepreneur, Adam takes pride in building a strong relationship with his clients and seeing them through to success. Call 832-225-3448 or go online to schedule a consultation with the Curley Law Firm.