Looking at Business to Purchase

[spenckr]

About six months ago I was approached by a former employer to come back to work for him. It has been about 2 years since I worked for this man. He has moved his family to Texas looking for greener pastures and will soon be following. He owns a window covering company in North Carolina that has been in business for almost twenty years.

He originally wanted me to run the company for him but now is inclined to sell it to me. We have come to an agreement on price and terms. Come to find out though, he is preparing to file personal bankruptcy next month. He also owes back payroll taxes. The company is an S Corp. Talk about a roller coaster ride.

If this goes through....I understand that I would not be liable for the back taxes since I would be creating another corporation at transfer. He is dragging his feet due to concerns that the IRS or bankruptcy court will take my downpayment. So that is slowing things down.

Any suggestions or advice? I am thinking it prudent to just wait on the purchase and se what happens but I prefer the security of owning it instead of depending on someone else.

Thanks.

[Business Attorney]

With all the red flags, you certainly should tread with caution. I suggest that you meet with a bankruptcy lawyer in your area to find out more about your rights and risks before you do anything else.

[vangogh]

I have to agree with David. There are definitely some red flags there and an attorney is likely going to have better answers than we will.

You certainly want to make sure that you won't be taking on a lot more debt than you realize at purchase. I'd also be asking myself if the business was a good one, why does it owe back taxes and why is the current owner filing for bankruptcy.

[Spider]

What will you get if you buy the business? For many small businesses, the purchase isn't much more than the customer list and few sundry bits of furniture. The customer list is often the most important element of the purchase, anyway.

Consider offering to buy the customer list only. That's where your future business will come from, certainly in the beginning. Maybe that's all you need to pay for.

If the business is operating out of rented property, contact the landlord and take over the lease. That will establish you with existing customers as the new business without taking on any of the old business's problems.

The point is, don't buy the company, buy the company's assets only.

[spenckr]

The business is still making pretty good money. The current owner's expenses are greatly inflated and I would have about one third of the expenses.

The tangible property os worth about $15K. The real value is in the name (20 years in business) and the phone number. Over 90% of his business is repeat. I need that name and number, otherwise the business has no value.

[KristineS]

Definitely see a lawyer to find out what your risks and liabilities could be.

Also, if this guy is so financially irresponsible, has he also been irresponsible with his customer service and product quality? If the value of the business is the name and the phone number, you need to do some due diligence to make sure he hasn't trashed those along with his financial future. Until you're sure that value remains, I wouldn't commit to anything.

[yoyoyoyoyo]

...You certainly want to make sure that you won't be taking on a lot more debt than you realize at purchase. I'd also be asking myself if the business was a good one, why does it owe back taxes and why is the current owner filing for bankruptcy.

No kidding.

---

and Spider, smart.

[krmwebdesign]

About six months ago I was approached by a former employer to come back to work for him. It has been about 2 years since I worked for this man. He has moved his family to Texas looking for greener pastures and will soon be following. He owns a window covering company in North Carolina that has been in business for almost twenty years.

He originally wanted me to run the company for him but now is inclined to sell it to me. We have come to an agreement on price and terms. Come to find out though, he is preparing to file personal bankruptcy next month. He also owes back payroll taxes. The company is an S Corp. Talk about a roller coaster ride.

If this goes through....I understand that I would not be liable for the back taxes since I would be creating another corporation at transfer. He is dragging his feet due to concerns that the IRS or bankruptcy court will take my downpayment. So that is slowing things down.

Any suggestions or advice? I am thinking it prudent to just wait on the purchase and se what happens but I prefer the security of owning it instead of depending on someone else.

Thanks.

I'm new here but if it were me I'd be very, very careful with this. There are a lot of rouge business people out there who seem to start new businesses every few months or few years and seem to leave a trail of poor unfortunates in their wake.

The question is how long and how well do you know this guy? Is it 10 years, everyday or 6 months, once a week? Is this guy moving for good reason or is he moving to get away from something. There are too many issues here that I wouldn't trust. Why is he trying to get rid of the business now rather than asking you to manage it? I would have a look into this guys background to make sure he is legit and trustworthy.

I'm not saying don't go near an opportunity but be very, very careful and make sure you know who this guy is and that he has no 'skeletons in his closet'.

I wish you all the best in your endeavors.

[a_caldwell]

If you got time I would strongly recommend you read:
- How to Buy & Sell a Business: how you can win in the business quadrant - Garrett Sutton
- Entrepreneur Magazines' Legal Guide: Buying & Selling A Business - Ira Nottonson

[alfromla]

why not starting your own business from scratch. Reputation is really important in a busienss and eventhough you are not going to be liable for his loss, you still have to work on rebranding and gaining your customers and vendors trusts so why not starting from scratch and saving some $$$.

[huggytree]

what are his extra 66% expenses???

that number is EXTREME....i could see 10%, but 66% doesnt seem possible to be correct.

i wouldnt pay much for a business which is 1 month away from being out of business. id renegotiate if you found out after the initial price was agreed upon.

anything to do with houses is just not doing well. businesses i deal with are going under and changing constantly....i wouldnt get into anything right now having to do with houses.

do you have original idea's on how to improve his business?

whats the % of gross sales that your paying for it?