Are We Obligated to Take On Credit Card Processing Contract?

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ChrisandShelley

ChrisandShelley

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We are getting ready to close in a few days and the current owners informed us that they have a 4 year contract with a credit card processor with 2 years left to go. We have already started an account with Square. So are we obligated to continue that contract? Has anyone ran into this before?
The company they are using is not very highly rated, but the rates are not bad. The sellers are super nice and have been very accommodating, but business is business. Thoughts or suggestions?
 
I wouldn't think their contract is transferable to you. Better check with your lawyer though.
 
It's a question to ask your lawyer. Here's a scenario for you - friends were in this same position and to get out of the contract when they sold they had to pay a hefty (around $4000 fine). Could be your sellers are in the same hole and want you to have to deal with it.
A lot depends on how contracts made by businesses are handled in your state.
 
Is the credit card contract in the corporate name of the B&B and did you buy the corporation? Ask your lawyer.
A 4 year contract? Are they crazy? One of the reasons that I love the deal via the Cost Club, after the first year, it's month-to-month.
 
That seems tricky, and you will get the short end of the stick and not feel you can make drastic changes right away.
But you can: With ours WE HAD TO HAVE A NEW CONTRACT as it was new SS# or Corp #, new TAX ID #'s, new STATE Tax ID #, and NEW BANK ACCOUNT!
So all that to say, tell them to stick it, and get on it asap let the PO's pay the fine, or whatever they get stuck with.
Don't let anything go into that old account, into their bank. Even after we changed it all over, the rep was standing in front of me, they kept putting the $ into the old account. I demanded a new client id and everything. This was before square and doing it our way.
I hope that helps!
 
I would think that their contract is separate and they would be obligated for any fines or costs. Definitely check with an attorney. If you haven't closed yet, make sure you're protected from this ridiculous contract.
 
I am not sure how you are buying this business.
There are normally two ways:
Asset Sale - you buy the property, furnishings, equipment, customer list, etc. Then you file as a new business with a new name and tax ID. In this case, I doubt you are responsible. That is the prior owner's obligation.
Buying the business itself - such as an S corp, LLC, sole proprietorship, etc.. You keep the old business open with the same tax ID and name. In this case, you may be obligated to keep the contract. This is rarely a good way to buy a business, regardless of claims made by the prior owner or their broker or lawyer. I got stung years ago when I bought an S corp, for unpaid tax obligations, unpaid workmen's comp fines and other problems. You also inherit their liabilities, such as if someone who stayed there a year ago and filed a lawsuit.
 
undersea said:
I am not sure how you are buying this business.
There are normally two ways:
Asset Sale - you buy the property, furnishings, equipment, customer list, etc. Then you file as a new business with a new name and tax ID. In this case, I doubt you are responsible. That is the prior owner's obligation.
Buying the business itself - such as an S corp, LLC, sole proprietorship, etc.. You keep the old business open with the same tax ID and name. In this case, you may be obligated to keep the contract. This is rarely a good way to buy a business, regardless of claims made by the prior owner or their broker or lawyer. I got stung years ago when I bought an S corp, for unpaid tax obligations, unpaid workmen's comp fines and other problems. You also inherit their liabilities, such as if someone who stayed there a year ago and filed a lawsuit..
Click to expand...
More words of advise for those buying turn-key (this is what you should be getting for your $$ with your B&B consultant but you won't - so I am offering it for free - please make a note):
TAXES
Another thing that will happen is you will get the tax bill - here it is due in December, and it is for the previous year. So what this means is the PO's are off in France and you have to pay it or else. It was for the year THEY owned and operated, and now it is your business.
You can fight them and tell them we are a diff business now, even if you change the name of the B&B and they will tell you the tax parcel # and you are obligated to pay it.
Legally the former owners are obligated to pay, but try to get them to do so...I am sharing this NOW so you who buy a "turn key" B&B are aware that this is another one that will show up when they are long gone...
MARKETING RENEWALS
Another thing that happened to us is that the prev owners let all marketing lapse, that should be requirement in the contract that all are paid and up to date. What this meant was we walked in and had a stack of renewals a mile high and had to fork out a ton of CASH to pay for them all to keep the business running. Cash we didn't have. Most of us use fewer B&B directories and such now.
OPERATING EXPENSES
Make sure you have some operating expense $ as there will be surprises.
The president of our B&B association is on this forum, and in fact that is how we met. I spoke to her and said "We have no business, no revenue stream it is winter and the state assoc renewal is due Jan 1 (which many of them are) and they did not accept Visa. Is there a payment plan? What can we do?
We were up a creek. We had tax payments, and a hefty amount of annual renewals due Jan 1. DH went out and got a job...and has worked ever since.
FALSIFYING REVENUE
The B&B consultant has a disclaimer that they are not responsible for any facts and figures. So on our transaction they had a CASH line on their revenue stream excel paperwork. This was a lie. A bold faced lie. Ex: so far this year we have had not one cash payment here from guests. So all that to say don't trust the former innkeepers as far as you can throw them.
I am not the only one, there are 3 or 4 here who had encountered the same thing. Some want out, bad, and are willing to do anything to sell their place. I want to let you know this. I am honest, 100% of the time, and want the buyers of this place to have as much information and everything they need to succeed and continue on here. But then that is prob why we are still for sale! ha If I fudged the numbers... How did they fudge them you ask? They ran it as an S Corp and included other business transactions in their tax return. It was not separated out. So the numbers were inflated.
CONVEYANCE
If you don't take photos of each room and porch, grounds, shop, attic, basement, garage, etc they may also take things that you thought conveyed for the business. But on the opposite spectrum they will also leave every drawer full of junk and say it is for the business. So you will move in and have nowhere to put your stuff.
Porch swing - gone. Rugs - gone. Beds - taken and replaced with different beds and dressers. Fine china - switched out. Curtains in two rooms - gone.
Broken down gas grill - left. Broken down lawn mower - left. Tablecloths that don't fit any tables - left. Pieces of this and that and every drawer filled with random things you don't know what they are or what for - left.
Paint colors - not marked down anywhere for touch up. Reservation info from prev guests - index card system, gone.
If I think of any others I will add them later.
 
Joey Bloggs said:
undersea said:
I am not sure how you are buying this business.
There are normally two ways:
Asset Sale - you buy the property, furnishings, equipment, customer list, etc. Then you file as a new business with a new name and tax ID. In this case, I doubt you are responsible. That is the prior owner's obligation.
Buying the business itself - such as an S corp, LLC, sole proprietorship, etc.. You keep the old business open with the same tax ID and name. In this case, you may be obligated to keep the contract. This is rarely a good way to buy a business, regardless of claims made by the prior owner or their broker or lawyer. I got stung years ago when I bought an S corp, for unpaid tax obligations, unpaid workmen's comp fines and other problems. You also inherit their liabilities, such as if someone who stayed there a year ago and filed a lawsuit..
Click to expand...
More words of advise for those buying turn-key (this is what you should be getting for your $$ with your B&B consultant but you won't - so I am offering it for free - please make a note):
TAXES
Another thing that will happen is you will get the tax bill - here it is due in December, and it is for the previous year. So what this means is the PO's are off in France and you have to pay it or else. It was for the year THEY owned and operated, and now it is your business.
You can fight them and tell them we are a diff business now, even if you change the name of the B&B and they will tell you the tax parcel # and you are obligated to pay it.
Legally the former owners are obligated to pay, but try to get them to do so...I am sharing this NOW so you who buy a "turn key" B&B are aware that this is another one that will show up when they are long gone...
MARKETING RENEWALS
Another thing that happened to us is that the prev owners let all marketing lapse, that should be requirement in the contract that all are paid and up to date. What this meant was we walked in and had a stack of renewals a mile high and had to fork out a ton of CASH to pay for them all to keep the business running. Cash we didn't have. Most of us use fewer B&B directories and such now.
OPERATING EXPENSES
Make sure you have some operating expense $ as there will be surprises.
The president of our B&B association is on this forum, and in fact that is how we met. I spoke to her and said "We have no business, no revenue stream it is winter and the state assoc renewal is due Jan 1 (which many of them are) and they did not accept Visa. Is there a payment plan? What can we do?
We were up a creek. We had tax payments, and a hefty amount of annual renewals due Jan 1. DH went out and got a job...and has worked ever since.
FALSIFYING REVENUE
The B&B consultant has a disclaimer that they are not responsible for any facts and figures. So on our transaction they had a CASH line on their revenue stream excel paperwork. This was a lie. A bold faced lie. Ex: so far this year we have had not one cash payment here from guests. So all that to say don't trust the former innkeepers as far as you can throw them.
I am not the only one, there are 3 or 4 here who had encountered the same thing. Some want out, bad, and are willing to do anything to sell their place. I want to let you know this. I am honest, 100% of the time, and want the buyers of this place to have as much information and everything they need to succeed and continue on here. But then that is prob why we are still for sale! ha If I fudged the numbers... How did they fudge them you ask? They ran it as an S Corp and included other business transactions in their tax return. It was not separated out. So the numbers were inflated.
CONVEYANCE
If you don't take photos of each room and porch, grounds, shop, attic, basement, garage, etc they may also take things that you thought conveyed for the business. But on the opposite spectrum they will also leave every drawer full of junk and say it is for the business. So you will move in and have nowhere to put your stuff.
Porch swing - gone. Rugs - gone. Beds - taken and replaced with different beds and dressers. Fine china - switched out. Curtains in two rooms - gone.
Broken down gas grill - left. Broken down lawn mower - left. Tablecloths that don't fit any tables - left. Pieces of this and that and every drawer filled with random things you don't know what they are or what for - left.
Paint colors - not marked down anywhere for touch up. Reservation info from prev guests - index card system, gone.
If I think of any others I will add them later.
.
Click to expand...
It is like buying a house or a business. Everything being transferred must be listed. Anything missing can cancel the contract/cause a lawsuit. You have the right to stop by right before closing to verify listed items still there.
Everything that is not clearly listed in their records and on their tax returns should be DISREGARDED. When they say "we do a lot of cash" or "we are a cash business", that means they likely are tax cheats; do you really want to buy the B&B/business from somewhat without morals? What will they leave you with? And even then, they often falsify their tax returns to the govt, or give you fake copies that do not reflect reality. You can get the real return from the govt in the USA, banks do this at times for mortgages. Just the threat of this may cause them to come clean on falsifications.
I have to hope people always do this through an attorney; they know what to do to protect your rights.
 
Joey Bloggs said:
undersea said:
I am not sure how you are buying this business.
There are normally two ways:
Asset Sale - you buy the property, furnishings, equipment, customer list, etc. Then you file as a new business with a new name and tax ID. In this case, I doubt you are responsible. That is the prior owner's obligation.
Buying the business itself - such as an S corp, LLC, sole proprietorship, etc.. You keep the old business open with the same tax ID and name. In this case, you may be obligated to keep the contract. This is rarely a good way to buy a business, regardless of claims made by the prior owner or their broker or lawyer. I got stung years ago when I bought an S corp, for unpaid tax obligations, unpaid workmen's comp fines and other problems. You also inherit their liabilities, such as if someone who stayed there a year ago and filed a lawsuit..
Click to expand...
More words of advise for those buying turn-key (this is what you should be getting for your $$ with your B&B consultant but you won't - so I am offering it for free - please make a note):
TAXES
Another thing that will happen is you will get the tax bill - here it is due in December, and it is for the previous year. So what this means is the PO's are off in France and you have to pay it or else. It was for the year THEY owned and operated, and now it is your business.
You can fight them and tell them we are a diff business now, even if you change the name of the B&B and they will tell you the tax parcel # and you are obligated to pay it.
Legally the former owners are obligated to pay, but try to get them to do so...I am sharing this NOW so you who buy a "turn key" B&B are aware that this is another one that will show up when they are long gone...
MARKETING RENEWALS
Another thing that happened to us is that the prev owners let all marketing lapse, that should be requirement in the contract that all are paid and up to date. What this meant was we walked in and had a stack of renewals a mile high and had to fork out a ton of CASH to pay for them all to keep the business running. Cash we didn't have. Most of us use fewer B&B directories and such now.
OPERATING EXPENSES
Make sure you have some operating expense $ as there will be surprises.
The president of our B&B association is on this forum, and in fact that is how we met. I spoke to her and said "We have no business, no revenue stream it is winter and the state assoc renewal is due Jan 1 (which many of them are) and they did not accept Visa. Is there a payment plan? What can we do?
We were up a creek. We had tax payments, and a hefty amount of annual renewals due Jan 1. DH went out and got a job...and has worked ever since.
FALSIFYING REVENUE
The B&B consultant has a disclaimer that they are not responsible for any facts and figures. So on our transaction they had a CASH line on their revenue stream excel paperwork. This was a lie. A bold faced lie. Ex: so far this year we have had not one cash payment here from guests. So all that to say don't trust the former innkeepers as far as you can throw them.
I am not the only one, there are 3 or 4 here who had encountered the same thing. Some want out, bad, and are willing to do anything to sell their place. I want to let you know this. I am honest, 100% of the time, and want the buyers of this place to have as much information and everything they need to succeed and continue on here. But then that is prob why we are still for sale! ha If I fudged the numbers... How did they fudge them you ask? They ran it as an S Corp and included other business transactions in their tax return. It was not separated out. So the numbers were inflated.
CONVEYANCE
If you don't take photos of each room and porch, grounds, shop, attic, basement, garage, etc they may also take things that you thought conveyed for the business. But on the opposite spectrum they will also leave every drawer full of junk and say it is for the business. So you will move in and have nowhere to put your stuff.
Porch swing - gone. Rugs - gone. Beds - taken and replaced with different beds and dressers. Fine china - switched out. Curtains in two rooms - gone.
Broken down gas grill - left. Broken down lawn mower - left. Tablecloths that don't fit any tables - left. Pieces of this and that and every drawer filled with random things you don't know what they are or what for - left.
Paint colors - not marked down anywhere for touch up. Reservation info from prev guests - index card system, gone.
If I think of any others I will add them later.
.
Click to expand...
The closing of the sale should be handled by an attorney/escrow agent, and the previous owner's portion of the taxes due should be withheld from their proceeds and put in escrow by the closing agent.
The same should be done with utility bills, etc..
Similarly, the buyer should expect to have to pay for any fuel oil or fire wood or other similar commodity that the previous owners have already purchased and is in storage on the property.
Yes, there should be a conveyance list -- assume nothing -- and you need to take inventory immediately upon closing...
 
Harborfields said:
Joey Bloggs said:
undersea said:
I am not sure how you are buying this business.
There are normally two ways:
Asset Sale - you buy the property, furnishings, equipment, customer list, etc. Then you file as a new business with a new name and tax ID. In this case, I doubt you are responsible. That is the prior owner's obligation.
Buying the business itself - such as an S corp, LLC, sole proprietorship, etc.. You keep the old business open with the same tax ID and name. In this case, you may be obligated to keep the contract. This is rarely a good way to buy a business, regardless of claims made by the prior owner or their broker or lawyer. I got stung years ago when I bought an S corp, for unpaid tax obligations, unpaid workmen's comp fines and other problems. You also inherit their liabilities, such as if someone who stayed there a year ago and filed a lawsuit..
Click to expand...
More words of advise for those buying turn-key (this is what you should be getting for your $$ with your B&B consultant but you won't - so I am offering it for free - please make a note):
TAXES
Another thing that will happen is you will get the tax bill - here it is due in December, and it is for the previous year. So what this means is the PO's are off in France and you have to pay it or else. It was for the year THEY owned and operated, and now it is your business.
You can fight them and tell them we are a diff business now, even if you change the name of the B&B and they will tell you the tax parcel # and you are obligated to pay it.
Legally the former owners are obligated to pay, but try to get them to do so...I am sharing this NOW so you who buy a "turn key" B&B are aware that this is another one that will show up when they are long gone...
MARKETING RENEWALS
Another thing that happened to us is that the prev owners let all marketing lapse, that should be requirement in the contract that all are paid and up to date. What this meant was we walked in and had a stack of renewals a mile high and had to fork out a ton of CASH to pay for them all to keep the business running. Cash we didn't have. Most of us use fewer B&B directories and such now.
OPERATING EXPENSES
Make sure you have some operating expense $ as there will be surprises.
The president of our B&B association is on this forum, and in fact that is how we met. I spoke to her and said "We have no business, no revenue stream it is winter and the state assoc renewal is due Jan 1 (which many of them are) and they did not accept Visa. Is there a payment plan? What can we do?
We were up a creek. We had tax payments, and a hefty amount of annual renewals due Jan 1. DH went out and got a job...and has worked ever since.
FALSIFYING REVENUE
The B&B consultant has a disclaimer that they are not responsible for any facts and figures. So on our transaction they had a CASH line on their revenue stream excel paperwork. This was a lie. A bold faced lie. Ex: so far this year we have had not one cash payment here from guests. So all that to say don't trust the former innkeepers as far as you can throw them.
I am not the only one, there are 3 or 4 here who had encountered the same thing. Some want out, bad, and are willing to do anything to sell their place. I want to let you know this. I am honest, 100% of the time, and want the buyers of this place to have as much information and everything they need to succeed and continue on here. But then that is prob why we are still for sale! ha If I fudged the numbers... How did they fudge them you ask? They ran it as an S Corp and included other business transactions in their tax return. It was not separated out. So the numbers were inflated.
CONVEYANCE
If you don't take photos of each room and porch, grounds, shop, attic, basement, garage, etc they may also take things that you thought conveyed for the business. But on the opposite spectrum they will also leave every drawer full of junk and say it is for the business. So you will move in and have nowhere to put your stuff.
Porch swing - gone. Rugs - gone. Beds - taken and replaced with different beds and dressers. Fine china - switched out. Curtains in two rooms - gone.
Broken down gas grill - left. Broken down lawn mower - left. Tablecloths that don't fit any tables - left. Pieces of this and that and every drawer filled with random things you don't know what they are or what for - left.
Paint colors - not marked down anywhere for touch up. Reservation info from prev guests - index card system, gone.
If I think of any others I will add them later.
.
Click to expand...
The closing of the sale should be handled by an attorney/escrow agent, and the previous owner's portion of the taxes due should be withheld from their proceeds and put in escrow by the closing agent.
The same should be done with utility bills, etc..
Similarly, the buyer should expect to have to pay for any fuel oil or fire wood or other similar commodity that the previous owners have already purchased and is in storage on the property.
Yes, there should be a conveyance list -- assume nothing -- and you need to take inventory immediately upon closing...
.
Click to expand...
I also assume this should be done with any existing debts, contracts, etc.
All this type stuff should be enumerated in the agreement, which is done and vetted by your attorney. For this, I would not use anything other than an attorney.
 
You should NEVER by their corporation or LLC. Always set up your own.
If you buy their legal entity, you're on the hook for any debts, contracts or obligations their company set up. If you're a new LLC or C-corp, you always get a fresh start - although if they've negotiated some good deals you may have a hard time getting the vendors to give you the same deal.
Get your attorney involved asap. Buy the assets, buy the name (and get it trademarked because that costs very little extra to do), buy the goodwill, buy their customer base and data, but don't every buy their corporate entity.
 
Wow! Great advice from several folks who obviously know something about this. Stop the presses and rewrite the story!
 
I'll throw in another thing you are responsible for if you didn't get it sorted before closing - unemployment benefits. If you don't change the name of the business (not talking about the name of the corporation that owns the business, the actual ABC B&B name) you're on the hook as far as the state is concerned. If ANYONE collected unemployment bennies under that inn name, at any time in the past, you are responsible for paying all of that money back to the state.
Right. You thought unemployment was a gift. Not a chance. If you made an unemployment claim against a business, the BUSINESS pays that bennie.
 
Morticia said:
I'll throw in another thing you are responsible for if you didn't get it sorted before closing - unemployment benefits. If you don't change the name of the business (not talking about the name of the corporation that owns the business, the actual ABC B&B name) you're on the hook as far as the state is concerned. If ANYONE collected unemployment bennies under that inn name, at any time in the past, you are responsible for paying all of that money back to the state.
Right. You thought unemployment was a gift. Not a chance. If you made an unemployment claim against a business, the BUSINESS pays that bennie..
Click to expand...
Correct. Every obligation of the business accrues to the buyer. When I bought a construction s corp, I had to provide warranty service to his past customers!!! How we learn...
unpaid taxes could theoretically cost you your building
 
PhineasSwann said:
You should NEVER by their corporation or LLC. Always set up your own.
If you buy their legal entity, you're on the hook for any debts, contracts or obligations their company set up. If you're a new LLC or C-corp, you always get a fresh start - although if they've negotiated some good deals you may have a hard time getting the vendors to give you the same deal.
Get your attorney involved asap. Buy the assets, buy the name (and get it trademarked because that costs very little extra to do), buy the goodwill, buy their customer base and data, but don't every buy their corporate entity..
Click to expand...
We are not buying their LLC. We already have an entity and are buying their assets and business.
 
While we're on the subject - if they sold any gift certificates, make sure you get the face value of those at the closing! We had 4-5 turn up after the fact that the PO's refused to pay us for.
We ended up eating the cost of the room just to keep the goodwill of the guest.
 
Morticia said:
While we're on the subject - if they sold any gift certificates, make sure you get the face value of those at the closing! We had 4-5 turn up after the fact that the PO's refused to pay us for.
We ended up eating the cost of the room just to keep the goodwill of the guest..
Click to expand...
Morticia said:
While we're on the subject - if they sold any gift certificates, make sure you get the face value of those at the closing! We had 4-5 turn up after the fact that the PO's refused to pay us for.
We ended up eating the cost of the room just to keep the goodwill of the guest.
Click to expand...
!!
Especially ones they donated. If they say they didn't keep track of them, then they can be billed for every one that is redeemed. When you buy a failing B&B or old school B&B they don't keep track of things properly. You walk in and they walk out... I know HF had great advise about all of this, but moving from your place and loose ends to the new place there is simply a gazillion things to keep track of.
So make a list, check it off one by one.
 
ChrisandShelley said:
PhineasSwann said:
You should NEVER by their corporation or LLC. Always set up your own.
If you buy their legal entity, you're on the hook for any debts, contracts or obligations their company set up. If you're a new LLC or C-corp, you always get a fresh start - although if they've negotiated some good deals you may have a hard time getting the vendors to give you the same deal.
Get your attorney involved asap. Buy the assets, buy the name (and get it trademarked because that costs very little extra to do), buy the goodwill, buy their customer base and data, but don't every buy their corporate entity..
Click to expand...
We are not buying their LLC. We already have an entity and are buying their assets and business.
.
Click to expand...
Then the contract isn't an asset, it's a liability... around here, you would either get to deduct the cost of the contract at signing or the would have to pay it off.
 
Joey Bloggs said:
Morticia said:
While we're on the subject - if they sold any gift certificates, make sure you get the face value of those at the closing! We had 4-5 turn up after the fact that the PO's refused to pay us for.
We ended up eating the cost of the room just to keep the goodwill of the guest..
Click to expand...
Morticia said:
While we're on the subject - if they sold any gift certificates, make sure you get the face value of those at the closing! We had 4-5 turn up after the fact that the PO's refused to pay us for.
We ended up eating the cost of the room just to keep the goodwill of the guest.
Click to expand...
!!
Especially ones they donated. If they say they didn't keep track of them, then they can be billed for every one that is redeemed. When you buy a failing B&B or old school B&B they don't keep track of things properly. You walk in and they walk out... I know HF had great advise about all of this, but moving from your place and loose ends to the new place there is simply a gazillion things to keep track of.
So make a list, check it off one by one.
.
Click to expand...
We make our charity certificates with a very short redemption time (since they have no actually cash value they don't seem to come under the required 5 year law). When we sell the innkeepers are going to have to honor about them (few in number).... or they can refuse the charity ones if they like and live with the consequences of refusing to "give it away." There is no way to put a face value on those.
They will receive a cash credit for the face value of any outstanding actual purchased certificates.
IF they belong to people we know well (most we don't) we may actually contact those holders and remind them to use them "soon."
 

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