Building a Texas business from the ground up can be exciting, but it comes with a good deal of risk. Instead, many entrepreneurs choose to buy existing businesses.
Purchasing an existing business can have its advantages, but when buying an existing business, it is important to have knowledgeable legal counsel help you complete your due diligence before you close the deal.
In this post, the business lawyers at Massingill will share some questions to ask when buying an existing business and help understand the good, the bad, and the uncomfortable truth about purchasing an existing business in Texas.
If you have any questions or would like to learn more, contact us today.
What to Look for When Buying an Existing Business
Entrepreneurs want different things when seeking out their next venture. You may have many reasons for purchasing a business, and what is attractive to you may not be attractive to someone else.
However, when buying an existing business in Texas, there are several important factors that every investor should consider. These include:
- Financial performance of the company;
- Conditions of the company’s industry, market, or niche;
- The company’s legal and regulatory compliance, both current and historical, including licenses, permits, contracts, and any pending litigation;
- State of business operations, including staffing;
- Value and protection of the company’s intellectual property assets;
- Loyalty of the company’s customer base; and
- Growth potential.
Buying a business can be a complex process, and it is important to do your due diligence and seek professional advice to ensure a successful transaction.
Questions to ask when buying a business include probing any of these topics to your satisfaction to ensure you have the right amount of knowledge to make an informed decision about whether to buy the business or move on to the next opportunity.
Steps to Ensuring a Smooth Transaction
What is one of the advantages of buying an existing business?
The obvious answer is that the company already has a product and a built-in customer base. But questions to ask when buying a business include inquiring whether that base is “sticky” enough to withstand a change in ownership or management.
Here are a few steps to ensuring a smooth transition once you buy an existing business.
- Do your research about how loyal the company’s customers really are.
- Conduct formal due diligence with the help of attorneys, accountants, and other professionals to ensure you understand the nature of the company’s financials and legal obligations.
- Craft a well-thought-out transition plan in consultation with your business advisors.
- Protect your investment with the right contracts in place with outgoing management and ownership, like non-disclosure agreements, non-compete agreements, and others.
You will also want to request certain representations and warranties from the seller that they have no liabilities to third parties and no outstanding taxes. A qualified business lawyer can assist you with this.
For a free legal consultation, call (512) 410-0343
FAQs About Buying an Existing Business
What Is the Role of Intellectual Property in Buying an Existing Business?
Intellectual property (IP) can be one of the most valuable assets when buying an existing business. It includes trademarks, patents, copyrights, and trade secrets.
When purchasing a business, it’s crucial to assess the value, ownership, and protection of the company’s IP to ensure that these assets are properly transferred and legally protected. A business lawyer can help verify IP ownership and safeguard your rights to these assets post-purchase.
How Do I Assess the Financial Health of a Business Before Purchasing?
To assess a business’s financial health, you should review its financial statements, including balance sheets, income statements, and tax returns from the past 3-5 years.
This helps you understand the company’s profitability, debt levels, and cash flow. A qualified business lawyer and accountant can help analyze these documents, identify red flags, and ensure there are no hidden liabilities or financial risks.
What Are Common Legal Pitfalls to Avoid When Buying a Business in Texas?
Some common legal pitfalls include overlooking the review of contracts with customers, vendors, and employees, failing to ensure proper transfer of licenses and permits, and not conducting thorough due diligence on pending litigation.
Additionally, not having clear non-compete or non-disclosure agreements with the previous owners can expose you to competition or intellectual property risks. A skilled business lawyer can help you navigate these potential issues and safeguard your investment.
Trusted Legal Guidance from Austin’s Top Business Lawyers at Massingill
At Massingill, we are devoted to taking care of your business’s legal needs. We closely monitor our clients’ needs at all stages of the business growth cycle.
We work with you to get your deals done quickly. Our dedicated business law attorneys are highly rated and experienced.
With our five-star Google ratings and flat-fee pricing, you know exactly what to expect from us right out of the gate.
Call (512) 410-0343 or complete a Free Case Evaluation form today to get started.
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Joshua Massingill
Joshua Massingill is an attorney practicing in Austin, Texas. He serves on the Texas State Bar’s Law Practice Management Committee, the Leander Educational Excellence Foundation (LEEF) Board of Directors, and the Success-Werx Board of Advisors. He mentors young entrepreneurs in Leander ISD’s INCubatorEDU program and is active in his church.
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