Posted by: Aug 18, 2023

What to Look for When Buying a Business

Buying a business in Texas, or anywhere else, is a significant financial and strategic decision that requires thorough due diligence. Some things to look for when buying a business in Texas include understanding the target company’s financial position, knowing the health of that industry or market, and preparing your financial position to make a business acquisition confidently. 

At the Curley Law Firm, we have spent over a decade helping Texas entrepreneurs achieve their business growth goals. In this post, we will walk you through what you should look for when buying a business and how to make purchasing a business as straightforward as possible.

If you have any questions, don’t hesitate to contact us today.

Do Your Due Diligence

First, you will need to undertake “due diligence,” or a systematic process of gathering information about the target company. Due diligence may differ slightly for each company or industry, so relying on experts like attorneys and accountants can help guide you to the information you need. Some of the critical items to gather and understand from your due diligence include the following.

Target Company Financials and Valuation

You want to assess the valuation of the business to ensure that the asking price is fair and reasonable based on its financial health. Requesting the business’s financial statements, financial projections, and business plan will help you evaluate the company’s growth potential and the strategies it has in place to achieve that growth.

Conducting financial due diligence can also help you confirm that the target business is performing as it claims. If its numbers do not look right or the company cannot provide you with the requested information, these issues may be red flags to investigate before agreeing to a purchase.

Understand the Reason for the Sale

Is the current owner selling because they want to retire, or are there fundamental issues in the business or industry that are forcing a sale? Understanding what to look for when buying a business and the reasons the current owner is selling can provide key insights into the business’s potential challenges and opportunities.

Analyze the Industry and Market 

Conduct a thorough analysis of the industry in which the business operates and the market conditions in Texas. Understand trends, competition, and growth potential in the local and regional markets. What to look out for when buying a business is whether the company is in a growth industry and whether the market for its goods and services is expanding or contracting. 

You may also want to examine the customer base and customer retention rates. A loyal and diverse customer base can tell you a lot about where the target company ranks in a competitive industry.

Confirm Legal and Regulatory Compliance

Ensure that the business is in compliance with all applicable laws, regulations, licenses, and permits. Review contracts, leases, and any potential legal issues that could impact the business.

Know the Value of the Intellectual Property

Identify and evaluate the business’s trademarks, patents, copyrights, and other assets that contribute to its value. Ensure that the intellectual property has adequate legal protection. 

Analyze Supplier and Vendor Relationships

Review the relationships with suppliers and vendors to understand the business’s supply chain and potential risks. An important thing to look for when buying a business is whether the company is dependent on a small number of suppliers to produce its product. If so, be sure to understand any risks to that supplier’s business as well. 

Negotiation and Terms

Carefully negotiate the terms of the purchase agreement, including the purchase price, payment structure, non-compete clauses, and any warranties or representations. An experienced Texas business lawyer can help ensure that your purchase agreement is well-drafted and protects your interests.

Make Sure Your Finances Are in Order

There are many ways to purchase a business, including cash or financing. 

Regardless of how you plan to pay, make sure you are ready to make the financial commitment. If you have a clear budget in mind, you will be better prepared for any negotiations about price.

Create a Plan for the Company’s Next Steps

When considering purchasing a company, make sure you have a solid idea of what you want the business to look like going forward. Some things to consider include the following.

Employee and Management Transition 

Assess the current team’s skill set and their willingness to stay on after the transition. Evaluate the need for training or hiring new employees to ensure a smooth transition. Work with an attorney to develop the right employment and non-solicitation agreements to protect your business.

Contingency Plans

Remember that buying a business is a complex process. You may need to rely on Plan A, Plan B, and Plan C to purchase and run a new company successfully. Seeking professional advice and guidance is essential and can help you make informed decisions and mitigate risks.

How the Curley Law Firm Can Help

For assistance with buying a business in Texas, contact the Curley Law Firm. Lead attorney Adam Curley has been practicing business law for over ten years. Adam takes pride in building a strong relationship with his clients and seeing them through to success. Contact us today to schedule a consultation with the Curley Law Firm.