Are you looking to invest in your future, or more specifically, to buy a business? If so, there are certain things you need to consider.
If you and the business owner you’re about to buy from haven’t put pen to paper, and have only completed a “handshake” deal, ensure the following discussions are had before finalizing the deal.
Number one: Buy the assets and look out hidden taxes
You won’t want to inherit the previous owner’s tax treatments, lawsuits, or unpaid bills, if there are any. If you purchase the assets of the business, instead of the business as it stands, you grant yourself the opportunity to form a separate version of the company.
One thing to be aware of is that even if your only purchase the businesses’ assets, the state government could single you out and urge you to pay the previous owner’s business taxes and other sales and payroll expenditures. Because of this possibility, you and the current owner must discuss whether they have any other employees, if they used a payroll service, and whether they are up to date on their business and employment tax. Another step you could take that will fully ensure your peace of mind, it to have the state government issue a clearance letter when all fees are current.
Number two: Accompanied expenses
These expenses can include a re-negotiation of the lease with the property owner or landlord, a security deposit, and other prepaid expenses, like a billboard ad. Most often, if the previous owner purchased ad space, they likely paid the length of the term in advance. Don’t expect to see these expenses in the initial price. If you want to see all the additional costs before closing, ask the current owner for a record of “closing adjustments” so you know what’s coming and can budget accordingly.
Number three: A Letter of Intent (LOI)
A properly written LOI will outline every detail of the sale, including:
- The closing prices
- The way the business will be bought
- Assets bought by the inherited and kept by the previous owner
- A non-compete clause for the seller
- Any other legal arrangements deemed necessary
There are more tips to know and discussions to consider having when purchasing a business. Referring questions to those in the field and those that have tirelessly studied the legalities of business ownership can be a wise move to further grow your interest.