American business owners defined as “baby boomers” are between the ages of 59-77 as of 2023. That means that many of them have retired or are heading towards retirement. This has opened up an opportunity for younger Americans to purchase the established businesses they are leaving behind. Businesses that have shown previous success with an existing customer base could be a wise investment. While the path to opening a new business comes with its own set of considerations, there are still plenty of things to think about when buying an existing business in Colorado.
Take These Initial Legal Steps Before Doing Your Due Diligence
After all the careful planning and research has been completed, and you’ve decided to buy a business, there are a few legal steps you can take:
Hire the Right Broker
There are few exceptions to Colorado law regarding the purchase of a business without a licensed M&A broker to facilitate the transaction. A general rule of thumb is to hire a broker that is experienced and knowledgeable about selling the types of businesses you’re looking to buy. They’ll have an inherent understanding of how your business works, along with the skills to shepherd you through some of the more complicated details of buying a business. They can also help explain some non-legal due diligence you’ll need to do before taking any legal action.
Draft and Sign a Letter of Intent
After you’ve gotten a sense of the terms and structure of the business purchase, you can submit a letter of intent (LOI). The letter outlines everything previously negotiated, purchase price included, and states your intent to buy the business. Understand that an LOI is a non-binding agreement that doesn’t lock you into a purchase, but helps further the process and gives you exclusive rights to purchase the business for an agreed period of time.
Check the Tax Status of Your Future Business
Liability for all taxes owed will be the responsibility of the current owner of the business, not the previous. Meaning, whether the outstanding debt was established before your purchase, you will be forced to pay any owed taxes. To insure this doesn’t happen, request a “Tax Status Letter” from the Colorado Department of Revenue long before the completion of sale. This letter will give you a complete picture of the business’ tax payments and tax delinquencies.
Take These Steps Before Finalizing Your Purchase
Once those steps are done and good business due diligence has been completed, you should consider these steps as close to the finalization of purchase as possible.
Acquire any Business Licenses
Not all Colorado cities require general business licenses to operate, but be sure to check with your city and county clerk for any appropriate forms you need. This is exclusively dependent on the type of business you’re looking to purchase. Most businesses don’t require federal business licenses or permits, however here are some common businesses that legally require federal business licenses.
- Alcoholic sales, serving, distribution or importing
- Firearms, ammunition, and explosives
- Fish and wildlife
- Commercial fisheries
- Maritime transportation
- Mining and drilling
- Nuclear energy
- Radio and television broadcasting
Apply for Your Sales Tax License
Colorado does require that you apply for a sales tax license or vendor’s license if your business is selling any tangible goods within the state. The Department of Regulatory Agencies offers resources to see if your business requires an additional statewide license(s).
Purchase the Insurance Right for You
The last legal step to take before closing the deal is purchasing insurance. The type of business you have will almost completely dictate your insurance needs, but Colorado has unique standards and thresholds of minimum coverage you should be mindful of. These can also vary from county to county.
To speak with a commercial insurance expert who can assist you with high-quality insurance coverage for your new business, use our Agent Finder to speak with a Farm Bureau Insurance® agent near you.