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When you buy a business, at what point should the business' accounts be turned over to the new owner ?

I am considering buying a business for sale by the owner ( no broker) and I also am not using a broker. The owner mentioned that everything is included in the sale except the accounts. I was under the impression that when you buy a business, the accounts are transferred over to the new owner after the sale is complete. Is that the way it works or will I be expected to start a new account for the business. My concern is that customers will mistakenly continue to pay the old owner instead of me. Any help would be appreciated.

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Answers (13)
Buy-a- Company

Yes, BOTH sides need both an attorney and an accountant.

Also, don't let the attorney blow the other party out of the water, unless the risks are just too great. You should be able to come up with a win/win. Ask yourself if you would sign the contract if you were on the other side.

Mar 30, 2010
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The BAF Group LLC
MD

That sounded very curt and perhaps even demeaning, and I did not mean it that way. I believe ANYBODY needs an Attorney and an Accountant, when buying a business - not just you.

Mar 30, 2010
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The BAF Group LLC
MD

Alex, you need both an Attorney and an Accountant, in my opinion.

Mar 30, 2010
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Thank you for the advice. This is far more complicated than I thought. Clearly I am going to need an attorney to help out with this transaction.

Mar 30, 2010
Buy-a- Company

Agreed. Depending on the nature of the business (how frequently customers pay and how old the receivables are), it is usually cleaner for the seller to keep the receivables, and to start fresh with all new sales. That eliminates the need for the buyer to evaluate the likelihood of collecting the receivables; those remain the seller's responsibility. Any checks you receive that go toward an open balance (receivable) you forward to the seller. Any payment the seller gets that are for business that occurred after the close they forward to the buyer. The closing date demarks the old from the new.

But the buyer opens all new bank and credit card accounts, and the seller keeps the old.

Mar 30, 2010
Robert Cutler
Attorney
New York County, NY

Typically in asset deals the bank accounts are not transferred, so you will most likely need to set up new bank accounts. The concern that you raise is usually dealt with by building into the purchase agreement a post-closing covenant by the seller to forward to the buyer trade receivables and other assets related to the business. A corporate attorney should be able to help you craft the appropriate language.

Mar 30, 2010
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The BAF Group LLC
MD

I have never dealt with any business where the bank accounts were turned over to the Buyer. You would set up your own bank accounts, credit card accounts ans so forth. Clients do not normally pay you directly via wire transfers and such, and if that is your scenario, that is a completely different subject. If your concern is about vendors that would be paid directly from cash withdraws from the business accounts - like from an ATM Card or direct withdraws, like Oil Companies do - you would set up the withdrawal with them to coincide with settlement.

Mar 30, 2010
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I was referring to the companies bank accounts not customer accounts. I am afraid of getting into a mess since I have never bought a business before and he has never sold one before. Neither one of us knows the protocol but I don't want to end up with the short end of the stick.

Mar 30, 2010
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Biz2Credit LLC
New York County, NY

Alex,

A lot of times business assets are bought and not the company as it can have some past liabilities which can surface down the line. Normally banks also prefer asset sales as it is more clean and easier to get financing also.

The best way to search for financing is to enter you information on www.biz2credit.com. If you meet the general criteria of a lender or a bank on the system, you'll be matched with them. If you don't meet any of the lender criteria, the system will educate you as to why you didn't fit the criteria and what you can do to qualify in the future. It's a great system and it's free. Good luck.

Mar 30, 2010
Julie A. Barnes, CPA
Small Business Exchange, Inc.
Travis County, TX

Hey, Joe

I believe I answered the question: "Secondly, the mechanism and timing of the transfer of accounts should be spelled out in the purchase agreement by your closing attorney." Obviously, everything is negotiable - including the timing of transfer of accounts.

Thanks
Julie A. Barnes, CPA
President, SBX, Inc.

Mar 29, 2010
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Julie, you and Buy a Company With No Name Or Phone Number both jumped towards the non compete issue of taking their customers with them. While this is excellent advice, I think Alex meant, when does he take over the "bank accounts" of the seller referenced by his statement, "My concern is that customers will mistakenly continue to pay the old owner instead of me". If I am wrong, I apologize. If not, how is this handled? Thanks

Mar 29, 2010
Julie A. Barnes, CPA
Small Business Exchange, Inc.
Travis County, TX

Hello Alex,

I agree with the previous poster that you pay special attention to a Non-Compete Agreement first of all. Secondly, the mechanism and timing of the transfer of accounts should be spelled out in the purchase agreement by your closing attorney.

If you and the seller cannot reach a satisfactory agreement which includes details about the transfer of accounts and his future involvement in your territory, you need to reconsider. For more advice about buying a business, please visit: http://www.AustinBusinessesForSaleBlog.com Hope this helps.

Good Luck,
Julie A. Barnes, CPA
President, SBX, Inc.

Mar 29, 2010
Buy-a- Company

Alex,

My first thought is to turn and run. Are you just buying a business concept, or an operating company? Is the owner intending to keep his accounts (and thus a working business)? In other words, will the owner be your competitor? In that case, he is keeping the current cash flow, and you are just buying the concept, for whatever that is worth.

Usually, the owner sells you the company, lock, stock, and barrel. The seller signs a non-compete agreement, and you get the accounts. That is a valuable part of what you buy.

Can you share what type of business this is? Sounds like problems down the road, but more info is needed to say for sure.

Mar 29, 2010

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