Why buying can be the smarter start
Buying an existing business can shorten the road to profitability. You inherit customers, cash flow, trained staff, vendor relationships, and a track record lenders can evaluate. That head start comes with a tradeoff: you may also inherit debts, tax obligations, legal disputes, or operational problems the seller never mentioned. The difference between a solid purchase and a costly mistake usually comes down to preparation. Before you make an offer, it helps to understand what to verify, which Washington agencies to check with, and how to structure the deal so the risk stays with the right party.
Get your foundation in place first
Start by defining what you want to buy: industry, size, location, and the role you plan to play day to day. Review your personal finances, credit, and available cash, because most acquisitions require a meaningful cash contribution. Under current rules for federally guaranteed business loans, buyers acquiring a business generally need a cash equity injection of at least 10% of total project costs, and a seller note can count toward up to half of that only if it stays on full standby for the life of the loan. Lenders may require more, so talk with a lender early and get prequalified before you negotiate. Assemble your advisory team at this stage, too: a CPA who understands business valuations and a Washington-licensed business attorney are worth the investment long before closing.
Verify everything through due diligence
Due diligence is where a buyer confirms that the business is what the seller says it is. Request at least three years of federal tax returns, profit and loss statements, balance sheets, and bank statements, and have your CPA reconcile them against one another. Review customer and vendor contracts, the commercial lease (including whether it can be assigned to you), equipment condition, employee arrangements, and any pending legal claims. In Washington, confirm the seller’s entity is active and in good standing with the Secretary of State, and search Uniform Commercial Code (UCC) filings through the Department of Licensing to see whether lenders hold liens on equipment, inventory, or receivables. Keep in mind that most licenses, permits, and registrations do not transfer automatically, so identify early which ones you will need in your own name.
Understand Washington’s successor liability rules
Washington law can make a buyer responsible for the seller’s unpaid state obligations. Under RCW 82.32.140, if the seller’s excise taxes are not paid within 10 days of the sale, the buyer can become liable for the full amount, so the buyer is expected to hold back enough of the purchase price to cover any balance until the seller produces a Tax Status letter from the Department of Revenue showing taxes are paid or none are due. Similar successor rules apply to unpaid workers’ compensation premiums owed to the Department of Labor & Industries, unemployment insurance taxes owed to the Employment Security Department, and Paid Family and Medical Leave premiums. Requesting clearance from each agency and building a holdback or escrow into the deal protects you from inheriting debts you did not create. Taxes on the transaction itself matter too: furniture, equipment, and vehicles included in an asset sale are generally subject to Washington retail sales tax, while goodwill and other intangibles typically are not, and buying a controlling interest in an entity that owns Washington real estate can trigger real estate excise tax.
Structure the deal and plan the transition
How the purchase is structured shapes how much risk you take on. In an asset purchase, you buy selected assets and generally leave the seller’s entity, and many of its liabilities, behind; in a stock or membership-interest purchase, you step into the existing entity along with its history. A well-drafted purchase agreement, reviewed by your attorney, should include seller representations and warranties, indemnification, a tax holdback or escrow, a non-compete, and a clear allocation of the purchase price for tax purposes. Before opening day, register your new entity, obtain your Washington business license and UBI number through the Department of Revenue’s Business Licensing Service, open your own L&I and ESD accounts if you will have employees, and agree on a transition period in which the seller introduces you to customers and staff. The Washington Center for Women in Business offers no-cost advising to help buyers evaluate opportunities, organize due diligence, and prepare for lender conversations, so you can move forward with confidence.
Written by: The WCWB Team
Sources
- RCW 82.32.140: Taxpayer quitting business, liability of successor
- Washington Department of Revenue: Selling your business
- RCW 50A.10.050: Paid Family and Medical Leave successor liability
- RCW 51.16.200: L&I premiums, liability of successor
- RCW 50.24.210: Unemployment contributions, successor liability
- A review of equity injection requirements for acquisition loans (Starfield & Smith)
