As we represent many current and new business owners in Colorado, we understand that independent contractors can be a major influence on a business and particularly a business sale. We have created a three-part series that will describe independent contractors, how they affect a business sale and how to make sure you are following regulations to avoid penalties. In Part 2 of our series, we describe how having independent contractors vs. employees can affect your business sale.
In Part 1 of our series, we described and provided resources on the differences between an independent contractor (IC) and an employee. It is essential as a business owner to ensure that you classify your workers properly and understand the pros and cons for each.
The type of workers that make up a business is a huge aspect for a buyer when deciding to purchase a business. When a business's workers are made up of primarily independent contractors, it can cause concern for a buyer. First, owners have less control over independent contractors vs. employees. This is due to the fact that the owner only has the right to direct the IC and not what will be done and how it will be done. This lack of control can cause concern for a buyer as there may not be as much stability with a business made up of ICs vs. employees, who the owner has full control over.
Additionally, there are very stringent laws and regulations owners must abide by when hiring independent contractors. If these regulations aren't followed closely, it can result in major fines and/or penalties. A buyer may feel uncertain about purchasing a business that is made up of ICs due to these strict regulations. This can result in a pre-sale liability clause that will make the seller liable post-sale if violations were discovered.
All in all, a business that is made up of numerous independent contractors can cause uncertainty for a buyer. This can lead to a decreased value on a business listing and/or the non-sale of a business. To remedy the situation it's important to make sure you are following all of the federal/state rules and regulations.? This will instill confidence in the buyer that the business is operating legally and can continue to run smoothly post-sale. In Part 3 of our series, we will provide resources and information to ensure owners are following regulations properly.
Selling a business is a complicated manner. If you have additional questions, please contact one of our Colorado business brokers at 720.259.5099 or email us.