Buying a flooring business is due diligence: get the records, choose between buying the assets and buying the company, learn what transfers, and have insurance ready on day one. This is general education, not legal, tax or valuation advice, and it values no business; rules vary by state, so confirm specifics with your attorney and accountant.
Why buy a running flooring business instead of building one
Buying trades a blank page for someone else’s finished one, with everything that comes with it. The Small Business Administration frames the appeal simply: “Starting a business from scratch can be challenging. Franchising or buying an existing business can simplify the initial planning process.” A flooring business that already has general contractors calling, a crew that knows the work and a van on the road skips months of the start-up sequence.
The same guidance is honest about the downside. “When you buy an existing business, you typically get complete control over its direction. However, with no set vision, infrastructure, or external guidance, your business could struggle as you figure out the best way to run things.” The SBA points the option at a particular reader: “if you’re an experienced business owner, you may want to consider buying an existing business.”
An installer who has run jobs but never run the office is a different buyer from an owner adding a second company. Be clear about which one you are before you look at listings. One practical upside is the paper trail, since “Existing businesses have the advantage of an established financial history.” If you would rather build from nothing, our post on starting a flooring business covers that path, and the flooring contractor insurance overview shows what any flooring business is expected to carry.
The investigation: what to look at before you sign anything
Due diligence is the work of finding out what you would actually own. The SBA’s instruction is short: “do your due diligence.” Once a specific business is in view, “it’s important to conduct a thorough, objective investigation.” Objective is the hard part when you already want the deal to happen.
Start with the questions the SBA names. “Don’t be afraid to ask questions about contracts, leases, existing cash flow, and inventory.” The aim, in the agency’s words, is to “understand the business from both a financial standpoint and in the overall landscape.” In this trade, that means asking about things a general business checklist misses:
- Open jobs and promised warranties. Which floors are mid-install, which are finished but not yet paid for, and what the seller has promised customers about callbacks.
- General contractor subcontracts. What each one requires of the subcontractor’s insurance, and whether it can be assigned to a new owner. The commercial flooring page walks through a general contractor’s insurance exhibit clause by clause.
- Vans and trailers. Whose name each is titled in, and whether the titles will move to your entity. Our commercial auto page covers how vehicles are scheduled on a policy.
- Tools and stock. A written list of the saws, sanders and stretchers, and a count of carpet rolls, tile and adhesive on the shelf. The contractors tools and equipment and property pages explain how each is insured.
- The shop lease. Whether it can be assigned, and what the landlord requires.
The documents your attorney and accountant should read
Professional help belongs at this stage, not after a handshake. The SBA says so directly: “At this stage, you’ll probably want professional help. Consider hiring an attorney and an accountant.” It adds that “An attorney and an accountant together can help you create and evaluate important documents.”
The SBA’s list of those documents makes a workable checklist for a flooring purchase. It names a letter of intent, a confidentiality agreement, contracts and leases, financial statements, tax returns and the sales agreement. The confidentiality agreement usually comes first, because a seller will not open the books, the customer list or the general contractor relationships to a stranger without one. The sales agreement comes last, and it is where the answers to every question in this checklist end up in writing.
What to pay is a decision for you with your accountant and attorney. This article covers the process, not the price, and it offers no way to put a number on a business. Keep the signed agreement and the diligence documents with the business’s permanent records after closing.
Buying the assets or buying the company
There are two broad shapes for the deal, and they leave you holding different things. In an asset purchase, you buy what the business uses: vans, tools, stock, the phone number, the customer list. In a purchase of the company, you buy the owner’s shares or membership interest, and the entity itself stays in place under new ownership.
The IRS looks at an asset sale piece by piece. “The sale of a business usually is not a sale of one asset. Instead, all the assets of the business are sold. Generally, when this occurs, each asset is treated as being sold separately for determining the treatment of gain or loss.” The way the purchase is spread across those assets matters to the buyer too, because the IRS notes that “It also determines the buyer’s basis in the business assets.” That allocation is an accountant’s task, done with the seller’s side.
A purchase of the company works differently. The IRS notes that “Your interest in a corporation is represented by stock certificates”, and that “An interest in a partnership or joint venture is treated as a capital asset when sold.” How a limited liability company interest is treated is a question for your accountant.
In plain terms, buying the company usually brings its contracts, its history and its past along with it. Buying the assets usually means you use your own entity and choose what to take. Which shape fits is for your attorney to advise on.
A change of owner and the federal tax ID
The EIN question follows from the deal shape. The IRS states the general rule: “You need a new EIN, in general, when you change your entity’s ownership or structure.” It also says what does not trigger one: “You don’t need a new EIN if you just change your business name or address.”
Beyond that, the answer depends on the kind of entity involved. The IRS’s own direction is “Check your entity type to see when you need a new EIN.” Do that with your accountant against the actual structure of your deal rather than working it out from a general list. If you are forming a new entity to buy the assets, the starting post above covers the order for getting its tax ID. The number you end up with will sit on payroll records, bank accounts and every insurance application.
Whether the licenses and permits come with the business
Some approvals can follow a sale and some cannot. The SBA puts it this way: “You’ll need to get any needed licenses and permits from the current owner or apply for them yourself.” That sentence does not mean a contractor license moves with the business. Whether a state contractor license or registration can pass to a buyer, or has to be applied for again in your name, is decided state by state, and many are tied to a person or an entity rather than to the assets.
Our state pages set out how each state treats flooring work, including licensing and registration, license bonds and the programs that reach older homes. Check every state the business works in, not just the one where the shop sits.
The SBA adds two more checks. On zoning, “Make sure your business follows all the basic zoning laws in your area.” And where the shop building is part of the deal: “If you’re buying real property along with the business, it’s important to check the environmental regulations in the area.”
The installers who come with the business
The crew is often the reason to buy, and the classification question starts over on the day you take ownership. An arrangement the seller used is not a ruling you inherit. The IRS test looks at the whole relationship and the right to direct and control the work, and it expects the owner to “document each of the factors used in coming up with the determination.” Run that test on each installer’s actual working arrangement, with your accountant.
The insurance side has its own test. The workers compensation page explains why a state’s comp rules can reach a different answer than the IRS about an installer, and the general liability page covers what changes when a 1099 installer works under your business. The starting post’s answer on deciding whether a new installer is an employee applies to an inherited crew just as it does to a first hire.
Insurance on the first day you own it
The seller’s policies were written for the seller. A policy answers for the named insured on its declarations, so the buyer generally arranges new coverage in the buying entity’s exact name, effective at closing. Our post on who is an insured explains why the name on the declarations comes first, including what happens when an owner adds a second company. The post on reading the declarations page shows where to check the name line and the business-form box.
Tell your agent about the purchase well before the closing date, not after. If anyone suggests that a seller’s policy simply continues, that is the insurer’s decision, not an assumption to close on. Certificates follow the policy: general contractors with open jobs will want new certificates in your name before your crew returns to their sites.
Real-World Scenario: An experienced installer agrees to take over the business of a retiring owner and buys the vans, tools and customer list through a new company. The closing date is set before anyone calls the agent. On the first morning, a general contractor’s office asks for a certificate in the new company’s name for a job already underway, and the vans are still titled to the seller. The crew waits while the policies and titles are sorted out. Raising the insurance at the letter-of-intent stage would have kept that job moving.
Floors the seller installed and the seller’s records
The work done before you owned the business is the question buyers most often leave until too late. A floor that fails after it was finished is a completed-operations question, and the general liability page linked above explains where flooring work meets the policy during and after the install.
Which policy answers can depend on the trigger. Our post on occurrence and claims-made policies covers prior acts and tail coverage when an owner sells. In diligence, ask which trigger the seller’s liability policy uses and how the seller’s past work will be answered after closing. Whether buying the company brings that past work with it is for your attorney.
Ask for the seller’s current policies and a claims history for each. The declarations, forms list and classifications tell you what the seller was insured as, and our post on classification codes shows what happens when a classification does not fit the work. Workers comp is a separate question: whether the seller’s comp record follows the business to you is something to put to your agent before closing, not to assume. The seller has a parallel list of its own, covered in our post on selling a flooring business. When the deal shape is settled, send us the business you are buying.