You’re buying an existing business. What happens after Due Diligence is cleared and you are waiting for the closing date to come around? This will be a very busy time of preparation for the buyer, and it is time to collaborate with the seller to get much of this prep work done. During a business sale, buyer and seller work closely together to get the business prepared for the sale and the handover to the new owner. There are many things that need to happen during this process, and it is really down to the seller to communicate to the buyer everything they need to do and need to get set up, in order to be ready to take over operation after the closing date.
Buyer and Seller Need To Communicate
As business brokers, we can’t possibly know everything that a buyer needs to do in order to be ready to operate the business they are purchasing. There is one person that knows everything that the buyer needs to get done, and that is the seller. In fact, in most cases, the seller is contractually obligated to assist the buyer with certain things, such as licensing and permitting, so the two parties must work cooperatively together in order to get the preparation done. The following list is provided as a courtesy, and is just a general example of some of the items that a buyer needs to address and/or ask the seller about, in order to prepare to take over the business, once ownership of the assets are transferred.
Form Your Business Entity
If you don’t already have a Florida corporation or LLC, you will need to form one prior to the closing. It’s good to make sure this happens immediately after Due Diligence has been cleared, because the contract and all of the closing documents will need to be assigned to this new entity as the buyer. The fictitious name or the public name of the business is most often sold with the business assets and will need to be transferred to the new owner upon closing. The buyer should verify that this happens.
Sort Out Your Tax Responsibility
The first thing that the buyer should do is get an EIN (Employer Identification Number) from the IRS. You will need this to open bank accounts, etc. The business should also be registered with the Florida Department of Revenue. If the business you are buying sells products, then you might need to register to collect and pay sales and use tax, and if you are going to hire employees, then you will most likely need to register for Florida re-employment tax, which is a type of unemployment tax. The seller or your personal CPA/Accountant will be the best resource for whether or not these items will apply to the business you are purchasing.
Set Up Banking and Credit
Once you have your EIN number, then you can go to your favorite bank and set up your business bank account. You will want all of your business funds to stay separate from your personal funds. This makes bookkeeping and accounting so much easier. Also, you might want to consider applying for a business credit card, so that your new business can start building up credit, which will make borrowing easier in the future. Also, the business credit cards these days offer fantastic points and rewards programs, that can give you nice perks and extras. Consult your CPA or banking professional for the best options for your particular situation. Furthermore, if this business takes credit card payments, you will need to set up your point of sale provider, or transfer the current point of sale contract to your account, while also attaching your bank account to it. If you forget to do that, the seller will continue to get your credit card income after the sale, so make sure to tick this box off of your to-do list.
Have An Accounting Plan
Find out how the seller handles the accounting. Do they use QuickBooks or other accounting software? Do they hire a bookkeeper or pay their accountant to keep all of their financials up to date? Decide whether or not you want to do the same thing as the seller or if you would prefer to handle the books in a different way. If you have employees, you might also want to consider if you are going to use a payroll company or cut payroll checks and pay employee taxes on your own. One of the biggest mistakes that business owners make is that they fail to keep good financial records. Make sure that you stay on top of this and when the time comes for you to sell your business, you will be ready with all of your numbers.
Apply For Permits and Licenses
As mentioned above, the seller is contractually obligated to assist the buyer, at the buyer’s expense, to apply for all of the required licenses and permits that are necessary to operate the business. Some businesses don’t require complicated licenses, and would only need to apply with their city and/or county for operating licenses and permits. Some businesses, like bars or construction will be more complex due to the state licensing required. As business brokers, we are not experts in the area of permitting and licensing, and we are unfortunately unable to help with this part of the process. However, if a buyer feels overwhelmed and wants to enlist the help of a permitting expert, then that can be a smart move to make. We have permitting and licensing specialists that we can recommend in these cases. Their services won’t be cheap, but they will do all of the research and applications on the buyer’s behalf and help navigate a sometimes-tricky application and approval process.
Secure Proper Insurance
Ask the seller what insurance they carry in order to operate the business. Verify with insurance experts (an insurance company or insurance broker) that you don’t need any other coverage, and then get quotes for all of the different policies that you will need to carry. Also, does the current owner provide any types of benefits or health insurance for the employees? You will need to decide if you will follow suit, and if you will, you need to set that up as well.
Set Up Utilities
At least a week before closing, (ideally a few weeks) make sure that you have contacted all of the utility providers that service the business. You will need to set up your own accounts or transfer current accounts where possible, to be active as of the closing date. For expenses, typically the closing date is the responsibility of the buyer, but it is up to buyer and seller as to what they would like to agree to. Some utilities, like water service, can take some time to get turned on, so make sure that you don’t wait until the last minute to schedule your utility changeovers.
Handover & Familiarization
Finally, you and the seller will need to agree as to when the vendors and suppliers are notified of the sale, so that you can set up accounts or transfer accounts with them. You might choose to use the same vendors as the seller, but you also might want to start new relationships with alternative vendors. It’s your decision who you want to work with, but for any existing suppliers or vendors, you will need to have the seller’s permission before you contact them to let them know that you will soon be the new owner. Suppliers can sometimes cut off credit to businesses if they find out they are selling, which can harm current operations, and that is not something that either party wants, so this can be a sticky subject. Also, you and the seller will need to come to an agreement as to how and when the customer lists will be handed over, so that you can begin servicing them.
This is by no means a complete and exhaustive list of what a buyer might need to do to prepare for possession of the business they are acquiring. It is meant to be a general outline and reminders, offered by us as a courtesy. We strongly advise all buyers to consult with the seller of the business, their accountant/CPA, legal professional or attorney, or experts in the areas listed above. We will always do our very best to offer resources to our buyers and sellers, and we can recommend professionals to help them through this part of the process.