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Austin TX Business Law Blog

Tuesday, September 11, 2018

Avoid These Mistakes When Buying a Business

How long does it usually take to find the right business to purchase?

Buying a business is a big decision. The purchase of a business will involve a significant outlay of capital and time. With so much at stake, you want to make sure you select the right business which will earn a return on your investment and achieve success in the long run. Anyone starting out in the business buying process will want to avoid making the mistakes discussed below. Contact our Austin, Texas business lawyers for experienced assistance with the purchase or sale of your business.

Mistake #1: Rushing the Purchase

Anxious buyers may rush to find and close on a business without doing the appropriate due diligence. Business purchasers should anticipate that it will take between 12 and 24 months to find the right company for sale. Most buyers will consider over 100 businesses, examine the sales and debts of over 15 companies, and sign a letter of intent on between two to four businesses.

Buyers will want to enter the purchasing process with an understanding that it will require much time. You will need to either plan on spending a lot of your personal time vetting the right business or you will want to retain the assistance of a professional who will relieve you of some of the burden. Never rush into a deal just to get it done, as you could come to greatly regret it.

Mistake #2: Failing to Thoroughly Review the Financials

Perhaps the most important part of the business buying process will be reaching a thorough understanding of the business’ financials. The seller and business broker will likely paint a positive outlook on the business’ financials, and it will be your job to verify them. You will want to closely examine all aspects of the business’ finances and compare them to industry averages. Understand the cash flow of the business and the reasons behind its success.

With a comprehensive understanding of the business’ finances, you can then identify what changes you might enact to make the business even more successful. Create a 100-day implementation plan that sets out your plans for the business. Knowing how the business makes money and how you can find more success will allow you to purchase the business with a good indication as to its future.

Mistake #3: Entering Negotiations With the Wrong Approach

Business purchasers may be tempted to enter into negotiations with the goal of beating up the seller on the price right away. Often, the business buyer fails to take the time to understand the motivations and emotions of the seller. Starting negotiations off on the wrong foot could blow any future deals.

Instead, buyers should enter into talks with the seller with a humble attitude that respects the achievements of the business owner. Use initial conversations to mostly listen to the seller, while reserving your many questions for later conversations. The time will come for you to negotiate fiercely based on your fair valuation of the business, but start talks off with some finesse to encourage an ultimately successful deal.

If you are going to purchase or sell your business, it is wise to seek the counsel of an experienced business law attorney. Contact us to learn how we can help you get the most out of your former or future business.


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