How to avoid costly surprises when buying a company

1. Why thorough preparation is crucial when buying a company

Buying an existing business can be an attractive way to enter the market, as the infrastructure, customer base, and contracts are already in place. But while buying a company offers many benefits, it also carries risks – especially with cross-border purchases in Austria or Slovakia.

Tax liabilities, underestimated obligations, or incorrect valuations can turn a bargain into a costly mistake. If you’re planning to buy a company in Austria or Slovakia, you should carefully examine all relevant factors.

2. Proper company valuation: What is the business really worth?

A common mistake when buying a company is misjudging its value. Often, the price is based solely on revenue or profit, but many other factors matter – such as debt, contracts, or future market potential.

Key points:

• Review financials: Alongside revenue and profit, check debts, outstanding liabilities, and tax obligations.
  
  Tip: Analyse the last three to five financial years for insights into the company’s stability.


• Assess customer base and business model: A company with long-term customer contracts is often more valuable than one with high customer turnover.
  
  Tip: If you’re considering a purchase, check how stable and diversified the customer base is.


• Consider market trends and competition: A company may be profitable today, but what about tomorrow?
  
  Tip: Market analysis helps you weigh up risks and opportunities.

3. Tax and legal risks: Identifying hidden liabilities

Buying a business means you also take on potential liabilities and obligations.
In Austria and Slovakia, company debts, unpaid taxes, or overdue social contributions can transfer to the new owner.

Key points:

• Check tax liabilities: Unpaid taxes or misreported income can lead to back payments.
  
  Tip: Review current tax notices and ongoing audits before purchase.


• Review social security contributions: Especially in Slovakia, unpaid social contributions are a common issue.
  
  Tip: Check contributions over the last few years to avoid surprises.


• Check existing contracts and obligations: Are there long-term lease or supply agreements?
  
  Tip: Review contracts carefully to avoid unexpected costs.

4. Differences between buying a company in Austria and Slovakia

There are important legal and tax differences depending on the country.

Buying a business in Austria:

• Most common company forms: GmbH or sole proprietorship.


• When buying a GmbH, liability transfers to the new owner unless otherwise agreed.


• Purchase price allocation affects tax, especially regarding assets and hidden reserves.


• Notarial certification is often required, especially for share transfers.

Buying a business in Slovakia:

• Most common company form: s.r.o. (similar to Austrian GmbH).


• Lower transaction and notary fees than in Austria.


• Corporate tax (for income over €100,000 to €5,000,000) at 21%, lower than Austria (24%, from 2024: 23%).


• Sector-specific subsidies and tax relief may be available for new owners.

5. The purchase agreement and handover: Key points to watch

After valuation and legal checks, the purchase agreement is the final – but crucial – step.
A poorly drafted contract can cause liability issues or disputes.

Key points:

• Define purchase price and payment terms clearly: Will payment be made upfront or in instalments, or adjusted based on performance?
  
  Tip: Installments can reduce financial risk.


• Clarify warranties and liability exclusions: Who is liable for existing debts or undiscovered obligations?
  
  Tip: Ensure clear warranties and exit clauses in the contract.


• Plan the handover and employee matters: Will the business continue seamlessly, or is there a transition period with the previous owner?
  
  Tip: A structured transition with the seller can help maintain business continuity.