Being a business owner always carries a certain level of risk. However, the rewards of ownership can be great as well. Whether you own one company or a portfolio of enterprises, you know that leveraging your assets and minimizing your liabilities is key.
After purchasing a business, some buyers get a surprise in the form of costs that they didn’t bargain for. Here is a quick rundown of three common liability situations that should be on your radar when considering purchase of a business.
When considering a business, be sure to include its tax payment record on your research list. Several types of taxes apply, most notably unpaid sales tax. Buyer liability exceptions exist with receiverships and foreclosure sales, as the sellers of businesses in these situations are not the parties who originally accrued the tax debt.
Poor Worker Safety Record
Upon a business purchase, the buyer inherits the seller’s workers’ compensation experience rating. A poor safety record with an abundance of claims could potentially raise policy premiums. To find out if a business is worth including on your short list, research its workers’ compensation record, the current rates, and the industry’s average insurance rate for perspective.
Unfavorable Lease Conditions
When evaluating a commercial property lease that a buyer may assume when acquiring a business, it is advisable to analyze the terms and ask yourself a number of questions, including:
- Are all of the lease’s terms and conditions acceptable for the operation of the business, including but not limited to, term, renewal terms, responsibility for payment of taxes, insurance, common area charges?
- Is the landlord responsible for any maintenance, repairs and replacements to the leased property or is the business responsible?
- Does the business have a lease that will expire soon? If so, does the current lease provide for specific renewal terms? Are the current and future rental rates competitive, market rates?
- Does the lease require the consent of the landlord or any lender in order to assign the lease to the buyer?
A leased commercial property will be a large part of your business expenses, so taking the time to evaluate the current situation to determine whether the leased property will be a successful match for your business is well worth the time.
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