Buying a small business

[Tabby]

Hi, I am really confused as to whether I should buy an existing small business as a 'going concern' or a 'sole prop'. I don't want to be caught out having to pay any outstanding debt. The seller owes his father money which was put into the business. Will i not be liable to pay the father if I buy the business as a 'going concern'?

[AmithS]

There are a few things to consider.

1. I assume when you say buying a business as a "going concern" you mean a "cc\pty"?
2. You can register your own pty and sign new contracts\agreements with suppliers\landlord etc... (depending on what type of business it is)
3. Always a good thing is to get a tax clearance certificate for the business

4. Most importantly is to ensure you use a good lawyer to draw up a proper sale of agreement document which covers for these types of risks.

Hope this helps a little.

[Tabby]

Thanks, that does help a bit. The business is a CC and is a franchise. I would be taking over the equipment and clientel. I would be providing a service to people who would sign contracts using debit orders. Can a Sole Prop have 2 partners in it? Which way would be better in the long run.....'going concern' or change to 'trading as.....sole prop' Hope I'm explining myself properly

[Dave A]

Can a Sole Prop have 2 partners in it?

No - that would be a partnership. A sole proprietor has only one "partner".

The business is a CC and is a franchise.

Strictly speaking the business is owned in a CC. What you want to do is buy the business, and not buy the CC. This is how you can make sure you don't accrue any surprise debts.

[Tabby]

Please excuse my ignorance in these business issues but can you perhaps elaborate on how one goes about buying the business and not the CC. I really appreciate your expertise.

[wynn]

The existing business will be 'Bill Bloggs cc' T/A 'The Sewing Circle'
you will buy the 'The Sewing Circle' franchise from 'Bill Bloggs cc' as a going concern in the name of 'Tabbys Trading cc' and will trade as 'Tabbys Trading cc T/A 'The Sewing Circle'
Any debt will remain in 'Bill Bloggs cc' whose member is not you and all the clients and good will will reside in the franchise 'The Sewing Circle'.

Do not take over any bank accounts or sureties that belong to 'Bill Bloggs cc' open your own at a different bank, old accounts and surities have a habit of jumping up and biting you months later.

does that help?

[Tabby]

Thank you so much, Wynn. Really appreciate your answer. Yes, you have helped me.

[AmithS]

Tabby, again I cannot stress enough how important it is to get a proper sale agreement drawn up by a lawyer. This is irrespective of which method you chose to buy the business.

What is very important to note since you say clients pay by debit order and have contracts is the existing clients!!! If you only buy the business and not the cc (which also means new bank accounts etc...) you have to ensure that all the existing clients debits and contracts get transferred to your new entity!!!

Hence a good contract can protect you in this regard, where you basically would be entitled to all the existing clients as well as take over all risk and reward of the business.

Rather spend the extra and be safe than sorry! I have seen this before where people buy businesses and the credit card machines as example are still linked to the old owners accounts for some time.

[Tabby]

Considering the following, is it wise for me to own the business under Sole Proprietorship, if the business I want to buy is an existing franchised gym where clients have signed up pre-paid and debit order contracts, and the premises are on lease? My concern is in the event that I pass away, what will happen to the business? RE: the liability to the clients and the lease on the premises?

[Dave A]

is it wise for me to own the business under Sole Proprietorship

Probably not.

[Rebel]

Probably not.

Please note that the CPA (consumer protection act) states that you in future must trade under your full names and ID no if you are a sole prop - no more "trading as" names UNLESS you register your trading name. TIP register your trading name as a defensive name before someone else grabs it and your goodwill in that name is loss

[jasonpat]

If you buy the property and the whole rights of it then what ever way the money comes for the property then its belong as a your money.

[alfred_minnaar]

You can buy it as a going concern but I will never take over their CC because then you can be held responsible for outstanding taxes etc. A good auditer to give you advice will be helpfull.