The first purchase of a company is a transaction that can be fraught with risk. A rookie entrepreneur’s lack of experience can blind them to parts of the process that can cause serious problems months or years down the road.
They devote the majority of their attention to revenue and profit figures, and in doing so, they often neglect to examine parts of a prospective business that pros seldom ever miss.
Those acquiring a business in the near future should look into these overlooked aspects, as it will spare them from the huge headaches that can result from failing to assess them.
There are few things that keep entrepreneurs up at night than the emergence of serious legal issues. To avoid this nightmare from becoming a reality, prospective business owners should go to great pains to review the intellectual property paperwork, including any copyrights, trademarks, and patents of a prospective company.
Additionally, any consulting agreements should be examined from front to back to make sure everything is in order.
If there are any glaring problems, there’s a good chance the sellers are trying to pass off imminent problems onto the shoulders of a hapless purchaser.
If a buyer uncovers any of these issues, they should run as fast as they can.
Employee retirement plans
It is stunning how many business buyers overlook this large expense when making a decision on whether or not to purchase a company.
This entitlement can have a major impact on its books, tu
rning a business that may appear to be an attractive buy into one that might struggle to make money in the long run.
Those looking to buy any business should take an in-depth look into the regulations they will be compelled to follow when it comes to funding the retirement accounts of their employees.
Furthermore, the previous owner may have neglected to keep their plans up to date with the Department of Labor. This can land an unsuspecting new owner in trouble with the law if the government finds fault with their retirement plans shortly after they take control.
W-2’s and 1099’s
Businesspeople need to be mindful of many different branches of government when it comes to buying and running companies, but of these departments, the IRS tops the list.
One of the biggest tax red flags a purchaser should watch for is the distribution of 1099 forms versus W-2’s.
If this occurs at a company under consideration, they should make certain that this practice is 100% legal as per IRS regulations.
If it is not, consider moving on, as running afoul of this government agency can cost significant amounts of time and money.