Searchers! 3 questions to quickly assess business profitability.
February 05, 2024
by a professional from James Madison University in Washington, DC, USA
Searchers! Before you spend $50,000 on costly transaction fees quickly assess business profitability with 3 Key Questions (Question 2 of 3): Question 2 - Labor Force Composition Analysis
Question: Are labor costs primarily W-2 or 1099?
Impact: This determines the risk level and the extent of due diligence needed for compliance with Department of Labor regulations.
Why It Matters: If the business is audited by the DOL and it is determined that the classification was incorrect, you can be fined over six figures due to not paying payroll taxes.
Story Time: Consider this scenario. I recently reviewed a business where a significant portion of labor costs were incorrectly classified as 1099, rather than W-2. This misclassification not only posed compliance risks but could have led to substantial financial penalties if audited.
Net Impact: Understanding the composition of the labor force is critical to avoid costly compliance issues which will be your responsibility after deal close. Have questions or want to learn more? Drop them in the comments below or send me a DM.
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from James Madison University in Washington, DC, USA
from The University of Chicago in San Antonio, TX, USA