You know how everyone always jokes about what a nightmare bureaucracy can be? If you are buying a business, prepare yourself – you are going to have your fair share of red tape. All of it will need to be completed in the correct order and to the correct level of ad nauseum before you can operate your business. Just remember that this process can be frustrating, but waiting for you on the other side is owning your own business!
This is a part of the business transaction process where your business broker can be worth their weight in gold. A good broker will have someone who can help you with any and all red tape, or they will be able to help you themselves. Some business buyers choose to have their broker do all of the licensing, others are able to get it completed with just a few suggestions. How you handle this part of buying your business is up to you.
Want some pointers? Here’s a sample of our best advice, derived from many trips down bureaucracy lane:
DO NOT PROCRASTINATE!!!
Many red tape items are contingent on one agency completing or signing off before another can even begin, so start early and stay on top of it.
Gather an Immense Pile of Paper
First you will want to try to get together the list of everything your broker and the seller think you will need. Ask the seller for copies of the licenses and permits they hold, as you will need their license and permit numbers to fill out your own.
Go online and print out every application you think you might need, even if you are going to be submitting them online. A printed version will allow you to collect all of the needed numbers/addresses/names/titles/etc. so you don’t end up timed out of the online application process (they pretty much all have a time limit and then they force you to start over, just to make them extra-user-friendly).
Once you have assembled your pile of seller information and printed applications keep all of it together and take it everywhere you go. Many applications require signatures from multiple government agencies or departments.
Naming Yourself and the IRS
The very first step is the naming process, even if you are buying an existing business and keeping the business name the same. Why? Your business will technically have two names, the DBA or “Doing Business As” (also called the Fictitious Name) and the legal name which can literally be “Anything You Want, LLC”. You will need to file your DBA with the Division of Corporations in your state, and the legal name will need to be filed through your attorney or a legal service like LegalZoom. You will also need to get a Federal Employer Identification Number (also called a FEIN or an EIN) from the IRS.
If the seller currently holds a license needed for the operation of the business, like a liquor license, then instead of starting from scratch you will be using applications for transferring that license. A word to the wise here – don’t rely solely on the information you find online about what is required to get the licenses issued or transferred. Get someone – a real, live person on the phone. Better yet, find the local office instead of the statewide call center, and get a local agent on the phone. The local agents are the ones who will be processing and issuing your license, so they are the ones you need to keep happy. Another caveat? Be really patient with this part of the process. You can call the same call center three different times and get three completely different answers to a single question. Defer to what the local office tells you in this case.
You will also need to get yourself a Certificate of Use and your local Business Tax Receipt or BTR (also called the Occupational License). The Certificate of Use gets issued after your building and fire inspections, your BTR after your Certificate of Use goes through. If you are buying an existing business, you may not need an inspection if the business has had one recently, but you will need to call and check. Again, get a living person on the phone to discuss the requirements and process and you will be far better off than trying to divine what you need from a cryptic government website.
Money, Money, Money!
Did we forget to mention that pretty much all licensing and permitting applications come with a fee? Yes, they all do. While rarely astronomical in price, the costs will be completely dependent on what applications you are filling out, what inspections you need, etc. We just wanted you to be ready with your credit card or checkbook when you start the process.
It Really Is Worth It
This is one of the parts of being your own boss that is not very fun, but with a good dose of patience and a bit of organization it will all fall into place. Most of the real, live people you will get on the phone are very helpful, and remember that your broker is always there to help you as well.
Are you thinking about buying a business, or do you already have a business in mind and are wondering about what kinds of licenses or permits you will need? Are you having trouble finding the agencies you need to get your applications filed? Please feel free to leave us a comment or question here, and we will be happy to help you with navigating the red tape.