Due Diligence Basics for Buying a Business in Texas

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Due diligence is often a misunderstood and loosely applied concept.  When buying a business in Texas, due diligence is a structured process that is critical to give a buyer confidence to purchase a company, and the ability to construct the terms to negotiate a business buyout.  Typically, the due diligence terms are negotiated in a Letter of Intent (LOI).  A CPA and a Texas business lawyer in Austin are useful resources to structure your letter of intent, due diligence process, and to analyze business contracts and other records before you decide to purchase a company.

Due Diligence Process for Buying a Business in Texas

Your letter of intent (LOI) generally provides a set period of time for the buyer’s due diligence.  If you are buying a company in Texas, the due diligence process is basically composed of three components:

Requests & Disclosures: Business Buyer makes information requests (often spelled on in the letter of intent) and Business Buyout Target provides information and makes representations.

Discovery & Research:  Business Buyer works with professionals, such as a CPA and a Texas business lawyer in Austin, to  conduct independent fact finding and analysis of Business Buyout Target’s documents and representations.  Due diligence team identifies discrepancies that effect purported value and value-add opportunities.

Decision-Making: Business Buyer determines what is essential for a business buyout vs “nice to have.”  Business Buyer determines price and protection mechanisms for risks, and identifies which risks the Business Buyer will refuse to assume. The Buyer and Texas business lawyer develop a negotiation strategy and structure a facially competitive bid with significant clawbacks, a.k.a., price adjustments, to hedge for risks and warranties.

Our Texas business law firm in Austin regularly counsels clients who are buying a business in Texas and negotiating a business buyout or partnership buyout.  Contact our Austin law firm today to speak with a Texas business lawyer about buying a company and structuring your letter of intent (LOI) and due diligence process.

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