Business buyers beware: Know what to ask before you invest

When you buy an existing business, or a portion of one, you are also buying the workers’ compensation claim liabilities of that business. The new business owner inherits the claim responsibilities and the risk of increased premium rates.

Before buying the business, it is important to uncover potential hidden future expenses like workers’ compensation claim liabilities. You should also ask to review workplace safety and health records. These records are not usually disclosed in financial documents. You may uncover “hidden” liabilities.

Labor & Industries (L&I) can only disclose this information to the current business owner, and not a potential buyer directly, so you’ll need to request the seller provide you with the information. They can contact L&I’s Employer Services at 360-902-4817 to request any information they don’t have on hand.

What specifically should you ask for? Consider these items:
Injury and Cost Profile: This one-page report covers a five-year history of workers’ compensation and injury data for a business, including premiums that may include savings from a Claim-Free Discount or higher rates due to time-loss or disability claims. 
Injury Report: This report lists various claim expenses incurred by the business. Categories include medical, time-loss, partial permanent disability, pension and more.
Estimated Future Rate Projection: This information projects a future experience factor and premium expenses should the business data remain unchanged.
Safety and Health Consultation Report: Workplace safety culture is an intangible asset or risk a buyer inherits. Employers can voluntarily schedule a no fee, safety and health consultation that includes a walk-through to evaluate each workplace for hazards and an evaluation of the Accident Prevention Program required for every business. Ask the seller if this report is available for review. 
Recordkeeping and Reporting of Worker Injuries (OSHA 300 Log): Employers with 11 or more employees, and those in certain industries, are required to record workplace injuries and illnesses. Prior to purchase, buyers are encouraged to review the OSHA 300A Summary to learn the business’ work-related injuries or illnesses. 

For further details on these recommendations, download L&I’s Business Buyer Beware Fact Sheet, or connect with L&I’s Small Business Liaisons at SmallBusiness@Lni.wa.gov or 1-800-987-0145.