Searchers! 3 questions to quickly assess business profitability.

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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.

See full post here https://www.linkedin.com/posts/patrick-o-connell-3b235177_smb-buyers-before-you-spend-50000on-activity-7160270895708598272-arYa?utm_source=share&utm_medium=member_desktop

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Reply by a professional
from James Madison University in Washington, DC, USA
^redacted‌ thank you. I find short form content much more informative and applicable. Question 3 to be posted next week. See Question 1 here https://www.linkedin.com/posts/patrick-o-connell-3b235177_smb-buyers-save-over###-###-#### on-transaction-activity-7158096548088758274-oViA?utm_source=share&utm_medium=member_desktop
commentor profile
Reply by a searcher
from The University of Chicago in San Antonio, TX, USA
Think it’s worth calling out that the key to your question is “incorrectly classified” - 1099 labor shouldn’t be a big deal IF handled correctly. (In a few sectors, energy & construction included, 1099 isn’t uncommon nor would I shy away from a deal because of it.)
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