Before You Buy a Business…Consider An Asset Purchase Agreement


You’re buying an existing business.  Congratulations!

Before you close the deal, here are a few things to keep in mind:

Buy the assets, not the business. Under no circumstances should you buy stock in a business. Instead, buy the assets of the business and form a separate company to act as the purchaser. There are two compelling reasons to handle the deal this way. 1) You get a better tax treatment. 2) You won’t assume any of the seller’s liabilities.


Accounts Receivable. Prior to closing, determine how to handle outstanding accounts receivable at the time of closing. If you decide to purchase them, be sure to negotiate a discount as some may not pay.


Ask about Sales and Payroll Taxes. In some states, even if you structure the deal as an asset purchase, the state tax authority can come after you if the seller owed sales, use, payroll or other business taxes. Ask if the seller was using a payroll service. Confirm he’s current on all payments, then ask the state tax authority to issue a “clearance letter,” This may take a while, but it can save you tons of heartache down the road.


Transition time. Ask the seller to be available to train and assist for a few weeks after the closing to assure a smooth transition. It can help to have the seller introduce you to employees, suppliers, and customers, and to explain the books and nuances of the business. If you find you need more time that was negotiated in your agreement, consider paying the seller for his time until you’re comfortable you know what you’re doing.