Considering Buying or Selling a Business – Call Your CPA!

It seems everybody has a side gig these days to supplement their income or to allow them to do something they love. Sometimes these businesses are developed from scratch, other times they are purchased from others as operating businesses. There are a number of things to consider when you consider buying an existing business, not the least of which is the things you need to know when selling the business again, if necessary.

The first thing to know is that you will probably need help. A good accountant, such as the CFO’s of CustomOne CFO & Controllers, can help you understand the financial data, tax implications and complete the paperwork surrounding these transactions. They can also supply you with some of the questions you should ask before you sign on the bottom line.

Asset Only Purchases

When buying a business, especially a “C” corporation or limited liability corporation (LLC), you should make sure to do an “asset only” purchase. In this type of transaction you buy only the positive assets of the business and not its liabilities, such as outstanding loans or bad debt/accounts. It is suggested you form a new company to purchase the business as this gets you a better tax treatment and you won’t inherit any lingering liabilities, including lawsuits, from the old company.

Ask About Taxes

It is important to also ask about any outstanding taxes and make sure they are paid by the seller or in the transaction. Even if you buy only the assets of a company, the state and Federal tax authorities can come after you if the prior owner owed sales, payroll, and other business taxes.

Accounts Receivable

Your accountant from CustomOne CFO & Controllers will go over the financial statements for the business to determine all assets and liabilities associated with the business. Your purchase price depends on this valuation and your future operations depend on understanding the business and cash flow. Beyond that, you need to know the value of accounts receivable at the business. This outstanding revenue can be considerable and it is important to find out who will be responsible for collecting this debt and who will keep the proceeds.

Selling Your Business

Many of the same considerations pertain to selling your business – you have to have adequate financial statements that show you profit, not just revenue. You also need to understand the type of sale you are making and the nature of the offer from the buyer. You also need to know the tax implications of the proceeds from the sale and how to best deal with them. Again, your CPA from CustomOne CFO & Controllers can help you through the process and steer you in the right direction.