Buying a business can be a fresh start or provide a new stream of income, but it also carries risk. There are always potential liabilities, some of which may not appear right away.
These hidden issues can create financial and legal problems after the purchase. It is important to take time to identify and plan for these concerns before closing the deal.
1. Unpaid taxes
A buyer may become responsible for unpaid state or federal taxes. This can include sales tax, payroll tax or income tax. In Kentucky, the Department of Revenue may hold a new business owner liable for taxes owed by the previous owner. Always confirm the business is current on all tax filings and payments.
2. Pending lawsuits or legal disputes
A business might be in the midst of legal disputes that do not show up in financial records. These lawsuits can involve former employees, vendors or customers. In Kentucky, liability can transfer depending on how the buyer structures the transaction. Asset purchases often limit this risk more than stock purchases. Reviewing court records and asking direct questions can help uncover pending litigation.
3. Unpaid debts or vendor contracts
Some businesses carry debt that does not appear on the surface. This includes unpaid invoices or lease obligations. If a buyer agrees to take over the business as a whole, they may also take on this debt. In Kentucky, many vendor contracts transfer with the sale unless both parties agree to cancel or renegotiate them.
4. Employee-related liabilities
Employee wages, benefits or unpaid workers’ compensation claims can follow the sale. Kentucky employers must carry workers’ compensation insurance. Failure to comply can result in fines or claims against the new owner. Buyers should also check for any wage complaints or benefit issues that may affect ongoing operations.
A successful business purchase requires more than just checking profit and loss statements. Buyers must dig deeper to uncover hidden liabilities that can change the value of the business and lead to unexpected costs. A thorough review before purchase can help protect you from future legal and financial trouble.