TL;DR: I do secretarial work for a small business. The plan was for my partner and me to take over the business in six months, but now the boss is suddenly very sick and wants us to take over immediately. We’re not sure where to start or what legal steps to take.
More details: My partner and I both work under the table, with just a verbal agreement. There’s nothing in writing, but the clients know us and were aware that the boss was preparing us to take over. I have access to all the admin accounts, finances, etc., and my partner handles most of the client-facing work. The business is about five years old, run out of my boss’s garage, and barely makes a profit.
Neither of us has an MBA or experience running a business, so we’re not sure what we need to make everything official and legal. The boss is elderly and in hospice care, so communication has been difficult. The boss’s family (husband and daughter) aren’t involved with the business. We’re feeling a bit lost and overwhelmed with everything that needs to be done to take over and formalize things. Any advice on what steps we need to take or who we should talk to?
Jesse said:
Is this business even worth taking over?
It’s under the table, doesn’t pay taxes, and barely makes a profit. Is it really worth the legal and financial headache?
If the business is barely profitable with under-the-table operations, it might not survive being made legal. You’d have to work hard to get new clients just to break even. Hopefully, no money is exchanging hands for this takeover because it sounds like you’re just getting a client list that you already have access to.
@Lior
Exactly. It might be better to start your own business and take the clients with you. If you try to legalize the current business, the profits might disappear entirely. Talk to an accountant before you go too far down this path.
You’ll definitely need a lawyer. There’s probably some legal structure in place for the business, and that will dictate how you transfer ownership. You’ll want everything in writing so that the boss’s heirs don’t come after you later claiming you took advantage of the situation.
@Alexis
If the boss is already in hospice, you need to act fast. If there’s no paperwork in place, the business might go to her heirs after she passes.
If you have to break the law to barely make a profit, you don’t actually have a profitable business. Why take this on? It sounds like you’re being handed a sinking ship. Is there something about the business that makes you think you can turn it around?
If you’re serious about taking over, you’ll need to set up an LLC, open a business bank account, and make sure clients pay into that account. You’ll also need to find a new place to run the business. Without the boss’s share, you might be able to make a small profit, but it’s going to be tough. Try to figure out how to make it truly profitable.
@Evans
Exactly. Instead of getting caught up in all the legal details, just get the boss to sign an agreement transferring the business to you for a small amount (like $1), then set up your LLC and start fresh.
It might be better to buy the client list and any important assets (like equipment) in an asset sale and start a new legal entity. If the business has been operating under the table, you’ll lose a lot of profits when you start paying taxes. Talk to an accountant about whether it’s even worth it before making any decisions.
Can you explain what the business actually does? It’s hard to give specific advice without knowing more. If everything is under the table, why not just start your own business and take the clients with you? Is there equipment or something else you need from the boss? Feel free to DM me if you don’t want to post more details here.
It sounds like the business might already be dying. Get advice from someone who’s successfully run a business. Most business owners are willing to help if you ask respectfully.
Look into getting a mentor from SCORE or an SBDC. They offer free business advice from experienced professionals and can help guide you through this process.