QUESTIONS TO ASK WHEN BUYING A TEXAS BUSINESS
WHY DID THE SELLER PUT THE BUSINESS ON THE MARKET?
There can be many reasons a business owner wants to exit, such as:
- market or demand changing for the business;
- commonly the owner is worn out or in need of a change of scenery.
If you know the reason, perhaps this can allow you room to negotiate the price. Does the owner need to get out from under the business asap? If so, this may help you acquire a business at a price well under market value. Does the owner desperately need funds for some reason (bills, another business, retirement, family, new purchase)? If so, perhaps this helps you negotiate a favorable all cash offer.
IS THE SELLER SPEAKING TO MULTIPLE INTERESTED SERIOUS BUYERS?
If the seller is actively marketing or listing the business with the help of a broker, this may affect the timing of making a deal and put added pressure on the buyer to move quickly. Perhaps this necessitates a strategic decision to enter into a purchase agreement on a timetable which is faster than typical for a sale of a similar business in order to protect the deal. A buyer can request exclusivity within an letter of interest, but of course the seller would prefer to have options open for discussing the sale with other buyers. After all, a failed sale with one buyer could result in a missed opportunity with another buyer.
IS THE PRICE FIRM OR CAN IT BE REVISED AFTER DUE DILIGENCE?
It could be that after a review of the information provided by the seller, the price term is no longer agreeable. Perhaps the financials don’t check out or maybe the records are less than conclusive so the value of the business is uncertain and the buyer is still willing to purchase but in light of the added risk the price must be adjusted downward.
If you want to discuss some of the questions you should be asking the seller or its broker, or some of the questions you should be prepared to answer as the seller, contact Tim Sutherland to prepare for the sale or purchase of a Texas business. I will help you prepare for a business sales transaction by preparing confidentiality agreements, letters of interest, purchase agreement, and property transfers.