When considering a business acquisition in Texas, taking a strategic, thorough approach to minimize risk and achieve a successful transaction is essential. By taking the steps discussed below, you can increase the likelihood of purchasing a sound business that aligns with your goals and establish a strong foundation for its future success.
Find a business with potential
Locate a business with growth potential or positive cash flow in an industry you understand. To mitigate risk, consider companies with a diverse customer base rather than those with a few large customers. Cast a wide net by using business broker sites and working with local business brokers. Connect with professionals such as CPAs and attorneys who can refer you to small business owners and hidden opportunities to buy companies that align with your investment objectives.
Negotiate the best price
To lay the foundation for fruitful negotiations, hire an experienced business valuation professional to determine the company’s true worth. They will consider revenue, net income, expense normalization and industry-specific factors. Valuation professionals also consult relevant resources and benchmarks to fine-tune their appraisal.
Use the valuation to start negotiations and strive to reach a tentative agreement on a purchase price. Make the owner an unbinding offer, assess whether an asset purchase or stock sale makes more sense and consult with legal counsel experienced in business law related to acquisitions to minimize risk and ensure a favorable outcome.
Submit a Letter of Intent and begin due diligence
Draft the key terms of your purchase offer in a comprehensive Letter of Intent (LOI). This document also demonstrates your commitment to purchasing the company and grants you exclusive rights to review the company’s private information for a specified period.
Begin your due diligence and thoroughly review the company’s financial, legal and operational aspects. You may need to engage experts to analyze the data and identify potential risks. Based on findings from the due diligence process, make adjustments to the purchase price and other tentative aspects of the deal, if warranted.
Obtain necessary financing
Secure the financing you need for the transaction using a combination of equity and debt. Consider financing options such as SBA loans, traditional bank loans or financing provided by the seller. Work closely with lenders and financial advisors throughout the due diligence process to ensure you have sufficient funds to complete the transaction.
Close the transaction
Finalize the transaction with the help of experienced legal counsel, a CPA or other professionals as needed. Set a closing date for the purchase, transfer the funds into escrow and fulfill any legal requirements. Upon approval of the documentation, the seller will receive the funds, and the ownership will transfer to you. Address any licensing and other requirements to ensure a seamless transition.
Acquiring a business involves several key steps, careful consideration and diligent execution. With attention to detail during each stage, you can mitigate risks and maximize opportunities as you take this next step in your entrepreneurial journey.