If you’re an entrepreneur, there are a few things that you should consider before buying or selling your Houston, Texas, business. Regardless of which side of the table you are on, taking the time to ensure that all aspects of the sale are appropriately handled will make the transition a seamless one. Here are five tips to make the process work for you:
There are many benefits to buying an existing business — brand reputation, an existing customer base and stocked inventory — but buyers should fully research any company they are considering purchasing to understand why it’s being sold and what financial shape it’s in. A retiring owner is not an issue, but a failing or struggling business may be. The current owner will be able to provide some information, but you can also contact the county clerk’s office to learn more about previous owners. The Texas secretary of state’s office can provide information about the business’s registration. If the business holds licenses or permits, the regulating organizations can help. Buyers will need to obtain the financial information for the past two years, including assets and liabilities to make an informed decision.
Sellers, on the other hand, have their own research to do. They’ll need to research similar businesses in the Houston area to set a realistic asking price. Sales prices are sometimes based on the value of the business’s assets with brand recognition factored in. Owners can also compare their business with others in the industry that have recently sold to get a sense of the best features to market. Sellers should also consult with a CPA or tax professional before negotiating the sale to lessen the significant tax impact the sale can have. The amount of tax due will be based on how the business is legally organized and whether it’s the assets or the entity that are being sold.
- Know What’s Included
Buyers and sellers will need to come to an agreement about exactly what is included in the sale. Key features can include inventory, fixtures and equipment. You also must address intellectual property such as trademarks, patents, customer and vendor databases, the business name, logo and website. This agreement also defines the payment arrangements, including the down payment amount and schedule for installment payments. By clearly documenting the sale, no one will experience any unpleasant surprises.
- Secure Licenses and Permits
Both the buyer and the seller need to understand any licenses or permits the business requires. The county clerk must be notified about the ownership change, and the Texas secretary of state needs to be notified if the business is organized as a corporation, limited liability company or partnership. The Texas comptroller of public accounts will need to be notified for sales tax information. Making sure these legal requirements are taken care of is crucial for a smooth sale.
- Sign the Sales Agreement
All aspects of the deal should be clearly defined in a sales agreement and signed by both the buyer and seller. This should itemize all assets included in the purchase, contracts and payment schedule. It’s a good idea to ask an attorney that specializes in real estate law to review the agreement. At closing, the business will transfer to the buyer, and both parties will need to jointly file IRS form 8594 for the year of the sale.
- Secure the No Tax Due Statement
Finally, buyers need to obtain a Certificate of No Tax Due from the state comptroller. If this statement is not obtained prior to purchase and taxes are owed, the new owner will be responsible for all taxes, interest and penalties.
Buying or selling a business doesn’t have to be a difficult process, but both parties must do their research, agree on the sale terms and submit the appropriate paperwork. Careful planning will lead to a good deal for everyone.
Susan J. Taylor is a Houston-based commercial litigation and business law attorney. She began practicing law in Texas in 1985 with a primary concentration in business, real estate, and commercial litigation. Ms. Taylor is Board Certified in Civil Trial Law by the Texas Board of Legal Specialization. For expert help with commercial litigation, business or real estate law issues, please contact The Taylor Law Group for a consultation.