A New Business
A past estate planning client contacted me because she was interested in purchasing an existing business here on Cape Cod.
Initially she only needed the Purchase and Sales Agreement (P&S) reviewed but during the meeting I raised several other issues related to the purchase of the business. These included financing for the business and business insurance, such as property casualty and workers compensation. Because of the nature of this particular business, it was important for her to ‘incorporate’ the business in order to protect her personal assets. It is critical for people to realize that the new business should be set up in such a way that their personal assets are not at risk. If someone owns a business, such as a d/b/a or sole proprietor and they are sued for any reason, all of their personal assets are at risk if a judgment is raised against them. The best way to avoid this is to incorporate as an S Corporation (S-corp) or a Limited Liability Company (LLC). This way, if there is a lawsuit and a judgment is obtained against a person, only the assets of the corporation can be attached. In most instances, and with careful planning, most corporations or LLC’s will have very little assets.
In this business scenario, there was an existing lease that would be running out at the end of the year, and an investigation to determine whether or not there were any liens on the equipment associated with the business purchase. We were successful in obtaining a new lease with the landlord. It is essential to make sure a new business owner understands not only the terms of a lease but all costs involved so they know up front if they can afford to purchase a business. Most commercial leases are lengthy and more complicated than residential leases and especially more so than those in years past. Commercial leases also present additional costs that extend well beyond the monthly payments.
Assemble the Right Team
Financing was also a consideration prior to purchase because this client needed a loan to purchase the business that was over a hundred thousand dollars ($100,000). Over the thirty years, I’ve been in practice, I have built a network of trusted relationships with companies who not only assist my clients with their business needs but ensure they receive the best level of service. In this case, I was able to connect her with a commercial lender, one with whom she established a great rapport and quickly processed her loan.
There were issues about obtaining insurance for the business premises and vehicles as well as workers compensation insurance. Insurance coverage in these areas can be very confusing and unnecessarily expensive. Just as with commercial lending, it is important to deal with an insurance company that is not only knowledgeable and trustworthy but one that provides the best price. A good insurance company will shop around with their various carriers to find the absolute best price for the client. This is especially crucial for a new business, where keeping costs low can make a difference in overall business survival.
“I feel it is critical that I provide a prospective new business owner with the
best resources to make their company successful.”
Finally, I was able to help this client arrange bookkeeping and tax services to start her new business off on the right foot. This part is many times overlooked by new business owners because they’re excited to start their new venture. One of the first questions I ask is, “Who does your taxes?”
A reputable experienced certified public accountant (CPA) can provide a wealth of advice on the tax laws that will impact their business, especially in this climate where they are changing dramatically. A CPA can ensure that they understand the importance of deductions and saving receipts for the expenses the business incurs. A good bookkeeper will keep track of the day-to-day earnings and expenses and make sure that the taxes that must be paid, are in fact paid. Federal and State employment taxes and sales taxes must all be accounted for and paid to the government at specific times to avoid fees and audits. For many small business owners, this can be overwhelming, and most do not realize they need to account for paying the government. Make no mistake, the government can and will shut down a business for failure to pay taxes. Owning and running a small business is already difficult but trying to do it all themselves is rarely a good idea. If I can offer any advice, it would be to assemble a great team to help you operate a successful business that will exist for the long haul.
On the day of the closing, everything went smoothly, and my client achieved a lifetime dream of owning her own business!