"Prior to you head out and purchase an existing small business, you need to make certain that the books and accounting remain in order. You require to see a balance sheet and P&L statement, and you require to validate that information. What did Henry Kissinger and Ronald Reagan state in foreign diplomacy and negotiation? ""Trust, however validate!"" And, it is my contention that you take this fantastic advice when acquiring an utilized company.

Not long ago, I was doing a little very small company consulting. And I described that prior to getting serious about purchasing the business the purchaser requires to get a balance sheet, P & L (profit and loss) statement, and 3-years income tax return. Well, it ends up the business was John Du Wors a corporation represented by an ""Inc."" after the name of the business at the top of the P & L, so, the company depending on the type of corporation would have to submit business tax returns.

Nevertheless, when asked to produce these, they said they ran into difficult times and did not file in 2007 and 2008, and did not have the 2009 taxes done yet, which really are not absolutely due until September of 2010 with designated IRS extensions. Interesting I thought, but then I take place to discuss this concern relating to buying a company from a Corporation, which stopped working to file its taxes for 2008 and 2009 this night to a Tax Accountant at the Club House here.

He said this could be a big problem; particularly, 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 current. The 2009 taxes theoretically 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 statement to the reader here; CYA - I am not a Tax Attorney, this is illegal guidance, and I advise you validate this conversation (hearsay) with a licensed and expert Tax attorney Professional. I am not certified to give you legal advice, would never practice law without a license, and you can not take anything I state as legal suggestions. Okay so, CYA aside, this is my viewpoint and why I think this:

You see, I likewise spoke to somebody at Starbucks a number of weeks ago, and he informed me a story where a company that stopped working to file taxes, and consequently declared bankruptcy had paid him as an electrical/mechanical contractor for constructing improvement. The other supplier's plumbing, TI guy, drywaller, etc. and the Internal Revenue Service never ever got paid, as the company lacked money.

The Insolvency court came after the electrical contractor to repay the money for the services he 'd rendered in full, and the BK Court stated that cash would be divided amongst the rest of the financial obligations, and in 18-months, the electrical professional 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. Thus, the $80,000 was repaid to the court, had he not paid, that BK Court could require him to pay it. Kind of like the folks who were paid back from the Bernie Madoff money prior to everybody finding out it was a Ponzi Plan, although they got their refund, it actually was owed to all the other people too. Everyone loses.

Similarly, according to the Tax Attorney I spoke to, the assets of the Corporation (in this case Organisation For Sale Inc.) could be subject to a lien by the Internal Revenue Service, in fact all assets of that corporation. If the president of that company offered those properties to the buyer, it could be fraudulent conveyance, and thus, despite the fact that they were in the buyer's possession and a new corporation, the buyer might have to pay - or surrender that equipment to satisfy the lien, and think what, they 'd have business's address and could put a lock on the door - tough luck.

Additionally, in this case, we had the Business for Sale Inc. without any method to prove the balance sheet or P and L, besides 8-sheets of paper from a Quicken Program. And no Service Broker in their right mind would continue the listing with that huge warning out front. Okay so, in this case as a really small business consultant might say - ""I have no chance to determine if this is so, all I can do is hypothesize?""

Nonetheless, there is sufficient reason to provide no more for this organisation than the value of the secondhand equipment, and still, how can the buyer understand if company owner or his corporation owns it all free-and-clear, or if they obtained against a credit limit at the rely on the assets of the business, not to mention the back taxes owed, which the Corporation's President claims are owed. He might not have ""actually"" made any cash in those years, but presuming he did, he owes, and without those being paid, all the properties of that corporation are in limbo from what my friends and acquaintances tell me.

Therefore, this company case study is a wake-up call to anybody buying a business. And if you find yourself in a comparable situation, and if you want to pursue such a service purchase even more, I would advise you speak with an expert tax attorney before you continue. You see buying a company includes danger, and when such variables and unpredictabilities are contributed to the equation it makes sense to seek counsel on this set of scenarios. Tax Attorneys normally have time on their hands to sit down to talk about things like this after April 15, and certainly, you 'd really only require an hour or 2 to ask this question, and get the ""appropriate"" answer."