More Tips About Buying a Business
In my last article, I gave three tips about buying a business. Though research, buying assets, and hiring a professional are very important tips, there are more. Sales and payroll taxes, prepaid expenses, and letter of intent are some more aspects to focus on when buying a business.
Sales and Payroll Taxes
Asking about sales taxes and payroll taxes before buying a business can save you troubles in the future. Even if you buy a business’s assets, the state tax authority may have the ability to hold you liable if the previous owner owed sales, use, payroll, or any other business taxes. If the previous owner has other employees, you should ask if they were using a payroll service. This will give you the ability to confirm they are currently in employment tax payments. Once you get the current records, have the state tax authority issue a clearance letter proving the previous owner is up-to-date with the sales taxes by the closing date of the deal. This may extend the buying process but it will safeguard you down the road if anything happens with previous tax statements.
Expenses that the business has paid for upfront, might not be added to the purchase price. The previous owner may want to be reimbursed for the portion of the year that you will be running the business and benefiting from those prepaid expenses. These expenses can be added on at the time of closing the agreement. Ask for a seller for a list of closing adjustments which include the previous owner’s prepaid expenses. This will give you the opportunity to budget correctly and won’t be surprised at the closing of the deal. You can be prepared with all the information and it could mean you no longer want to purchase the business.
Letter of Intent
The letter of intent is an agreement between the buyer and the seller of the business. This agreement will lay out the important terms and conditions of the sale of the business. It typically includes the purchase price, how the business will be paid for, when the business deal will be paid for, the assets that are included with the business, the seller’s non compete agreement, and much more. Though the letter of intent is not legally binding, it is worth the time to discover any issues before lawyers begin drafting legal contracts that will make the sale a binding agreement. A letter of intent is meant to negotiate any terms and condition before legal documents are drafted and have to be redrafted. This can save the costs of legal fees.
**This article is for informational purposes only and is not intended to be legal advice. In relation to your individual situation, always seek advice specific to your circumstances from a lawyer.