"Before you head out and purchase John Du Wors an existing small business, you need to ensure that the books and accounting remain in order. You need to see a balance sheet and P&L declaration, and you need to verify that info. What did Henry Kissinger and Ronald Reagan state in foreign diplomacy and settlement? ""Trust, but verify!"" And, it is my contention that you take this fantastic recommendations when purchasing a used business. Not long ago, I was doing a little really small company consulting. And I described that prior to buckling down about buying the business the buyer requires to get a balance sheet, P & L (earnings and loss) declaration, and 3years income tax return. Well, it turns out business was a corporation symbolized by an ""Inc."" after the name of the business at the top of the P & L, so, the company depending upon the type of corporation would need to submit corporate tax returns. Nevertheless, when asked to produce these, they said they faced difficult times and did not file in 2007 and 2008, and did not have the 2009 taxes done yet, which actually are not absolutely due till September of 2010 with allotted IRS extensions. Fascinating I believed, however then I happen to mention this concern relating to purchasing a company from a Corporation, which stopped working to file its taxes for 2008 and 2009 this evening to a Tax Accounting Professional at the Club Home here. He said this could be a huge problem; namely, not submitting at all is a lot even worse than filing and not having the ability to pay, as the IRS would set up a payment structure to come present. The 2009 taxes in theory are not due up until September if he 'd filed an extension. However 2007 and 2008 are a real problem. Now then, prior to I go any further, I require to make a declaration to the reader here; CYA - I am not a Tax Lawyer, this is illegal advice, and I suggest you validate this conversation (hearsay) with a licensed and professional Tax attorney Professional. I am not certified to provide you legal suggestions, would never practice law without a license, and you can not take anything I state as legal recommendations. Okay so, CYA aside, this is my viewpoint and why I believe this: You see, I also spoke with somebody at Starbucks a number of weeks ago, and he told me a story where a business that stopped working to file taxes, and consequently went bankrupt had paid him as an electrical/mechanical contractor for constructing improvement. The other supplier's plumbing technician, TI guy, drywaller, and so on and the IRS never ever made money, as the business ran out of cash.
The Personal bankruptcy court came after the electrical contractor to repay the cash for the services he 'd rendered in full, and the BK Court said that cash would be divided amongst the rest of the debts, and in 18months, the electrical specialist would get a check, perhaps 10 cents on the dollar or his share. He had to pay back the cash he had actually been paid. Ouch. Therefore, the $80,000 was paid back to the court, had he not paid, that BK Court might require him to pay it. Sort of like the folks who were repaid from the Bernie Madoff money prior to everyone finding out it was a Ponzi Plan, even though they got their cash back, it in fact was owed to all the other people too. Everybody loses.
Similarly, according to the Tax Lawyer I spoke with, the properties of the Corporation (in this case Organisation For Sale Inc.) could be subject to a lien by the Internal Revenue Service, really all possessions of that corporation. If the president of that business sold those possessions to the buyer, it could be deceitful conveyance, and hence, despite the fact that they were in the buyer's possession and a new corporation, the buyer may need to pay - or forfeit that devices to please the lien, and think what, they 'd have the business's address and could put a lock on the door - tough luck. Furthermore, in this case, we had the Business for Sale Inc. with no method to show the balance sheet or P and L, other than 8-sheets of paper from a Quicken Program. And no Company Broker in their right mind would continue the listing with that huge red flag out front. Okay so, in this case as a really small business specialist might say - ""I have no chance to identify if this is so, all I can do is hypothesize?"" Nevertheless, there is sufficient reason to use no more for this organisation than the worth of the used devices, and still, how can the buyer understand if business owner or his corporation owns all of it free-and-clear, or if they borrowed against a line of credit at the count on the possessions of the business, not to mention the back taxes owed, which the Corporation's President claims are owed. He may not have ""truly"" made any cash in those years, however presuming he did, he owes, and without those being paid, all the possessions of that corporation are in limbo from what my friends and acquaintances tell me. Hence, this company case study is a wake-up call to anyone buying a business. And if you find yourself in a similar circumstance, and if you want to pursue such a company purchase even more, I would suggest you talk to an expert tax lawyer prior to you continue. You see purchasing an organisation involves threat, and when such variables and unpredictabilities are added to the formula it makes good sense to seek counsel on this set of circumstances. Tax Attorneys generally have time on their hands to take a seat to talk about things like this after April 15, and indeed, you 'd actually only require an hour or 2 to ask this concern, and get the ""appropriate"" response."