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What Mistakes To Avoid When Buying A Business In Texas

What Mistakes To Avoid When Buying A Business In Texas

Buying a business is an exciting time! 

It’s arguably a bigger decision than deciding who to marry. Your future is right in front of you, and you’re opening a whole new chapter. A business has a lot more strings and weight to it than a potential lover. And if done wrong, it can ruin you financially a whole lot more than a nasty divorce.

Before you pull the trigger on buying a business, there are some things you really need to know. Unless you’re an expert in Texas business law, you may be in for a Texas-sized surprise when it comes to the nitty-gritty of buying a business.

4 Mistakes To Avoid When Buying A Business In Texas

Before you agree to buy a business, it is crucial that you know the business inside and out. If you go about it incorrectly, then you could be risking your reputation, your employees, and your financial future. 

1. Don’t Rush Through The Process 

You found a business that you’re interested in buying, but you may not be a fan of lawyers and paperwork. While you have good intentions for hashing it out between you and the seller to close by the end of the month, bad news lies ahead. 

No matter how you feel about lawyers and paperwork, never rush the purchase of a business. There are minute (but critical) details you might miss if you’re in a hurry and don’t have the proper contracts written out. Even the smallest of details could ultimately lead to your financial undoing.

First things first, you need to speak with an attorney who specializes in Texas business law. For one, they can actually take the aforementioned paperwork off your hands. And two, you need an expert set of eyes to make sure you know exactly what you are getting yourself into.

2. Have Legal & Transparent Contracts 

As mentioned above, proper contracts are absolutely essential in the buying and selling of businesses. Furthermore, you need a contract that is both legal and completely transparent. 

Before buying or selling a business in Texas, reach out to Carson Law for the attorney who is bridging the gap in accessible legal counsel for small and medium-sized businesses in Texas. 

Set Expectations Of Each Party

Does your future success in the business rely on the seller’s expertise? If so, the contract should clearly state how long the seller will stay on to help you transition into your role as the successful owner and operator. 

You also need a clear understanding of the seller’s next step. Are they going through a divorce and liquidating assets? Or are they over the city life and making a big move to the mountains, never to be heard from again? This information matters greatly to you as the buyer. Moreover, these are the details that a thorough attorney specializing in Texas business law will cover. 

How To Include A Non-Compete Clause &  Make It Stick

Say you buy a business from a trusting friend or acquaintance. It seems like a good idea, so you shake on it and call it a day. Fast forward a few months down the line and this so-called friend has opened a competing business a couple of blocks away. Your clients and employees are quickly jumping ship to work with the person they’ve known for years. 

What are your options?

Well, that depends on the contract you both signed when you purchased the business. However, it’s important to note that non-compete clauses are not always easy to enforce in Texas. They must be reasonable in scope, define a geographic area, and be limited by time. It’s crucial to address all of the potential outcomes in your contract from the very beginning. 

Your livelihood is not worth giving someone who seems like an honest guy the benefit of the doubt. If they are honest, they will have no problem signing a legally binding contract. 

Need a non-compete clause in your contract? Then you need an attorney who specializes in Texas business law. Contact Carson Law today to find out about your options. 

3. Do Your Due Diligence

Before buying a business, you must do your due diligence. It is imperative that you know more about this business than anything else in your life.

As mentioned above, you need to have and understand a good contract, the expectations of each party, the employees and their roles, etc. However, you need to dig even deeper than what you may realize to account for things like a business valuation, review of profit and loss statements, review of day-to-day business processes, and audits of existing contracts . Again, this is where a good Texas business law attorney will become extremely handy.

Know The Current Cycle Of The Business

Have you seen and understand the analytics of the business’ history? Depending on the type of business, some seasonal highs and lows throughout the years may be normal. But don’t assume everything is good to go. Find out exactly where the business stands in its current cycle. 

If things are looking good right now, then you need to know whether they are due to drop off for a bit. Don’t assume the same stream of income being presented to you will remain consistent once you’re the owner.

Know Why They Are Selling

This one is important, although many people avoid asking because they think it’s too personal of a question. You need to know why someone has made the decision to sell their business. 

There are several perfectly reasonable explanations. For instance, if someone is going through a divorce, they may be liquidating assets to divide among the couple. Or maybe they’ve made the decision to retire.

Whatever the reason may be, you need to have a full understanding of why they are selling. This gives you a lot of insight into what’s going on in the business.

Even if they claim to be getting out of the business to retire or do something new, you still want that non-compete clause previously discussed. At the end of the day, this is what the seller knows and is comfortable with. So who’s to say they don’t change their mind and open up a local competing business?

Know Which Employees Will Be Sticking Around

Does the business you’re looking to buy have key employees that keep it running?

If you don’t already know the answer to this question, then you need to take a big step back and call a Texas business attorney right away.

If there are key employees who keep this business’ world turning, then find out exactly why. The following questions are just a small sample of what you should be asking:

  • What is the relationship between the business owner and employees?
  • Are the customers loyal to the business because of these employees or the service provided?
  • Will the customers follow these employees to another business if they move on?
  • What percentage of the business is dependent on specific employees? And why?
  • Are the employees only sticking around because of loyalty to the current business owner?
  • What will it take to retain these employees for at least 6 months?

If you don’t have clear answers to these questions, you may be in for quite an expensive surprise. 

4. Never Buy On A Handshake (Or A Cocktail Napkin)

Imagine you’ve been working for your boss for decades. They have always told you they appreciate you and have even said they want you to take over the business one day. This is a nice sentiment. It makes you feel good and valued. However, it’s important to realize that it actually means nothing if it’s not documented on a legally binding contract. 

If you choose to stick with a certain business because of promises for the future, make sure those promises will stick. You may be thinking that you and your boss have a great relationship, so it’s understandable that you have faith in them. 

Imagine that in the unfortunate case they pass away – leaving the business left to their children. What if the children want to run the business themselves? Or what if they want to sell the business to the highest bidder? Without a clear and transparent contract, you will find yourself out of luck. 

These are just a few examples of how a handshake deal can go wrong. Moreover, cocktail napkin contracts don’t carry much weight either. If you are putting your faith in any business or person, you can’t bank your future on their word alone. 

Need Accessible Legal Representation For Your Small Or Medium-Sized Business?

Many people don’t even consider hiring an attorney because they assume the cost is out of reach. While many attorneys in Houston, in Texas, and beyond may operate at price points that would break any small business, Carson Law is bridging the gap to provide accessible legal representation. Seeing the need for approachable and affordable legal counsel for small and medium businesses, Carson Law has made it its mission to put an end to unrepresented businesses. 

Whether you are a business owner or are considering buying a business, it is 100% crucial that you have an attorney to call on. Get in touch with Carson Law today to learn more about your options as a business owner.