Selling a business that requires a trade specific license

April 15, 2022

by a searcher from Cornell University - SC Johnson College of Business in Los Angeles, CA, USA

Anyone have experience selling or buying a business that requires a specific license (contractor's, pharmacist's etc), specifically if the license isn't common? Wanted to see how people addresses/got around the issue. Thanks

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Reply by a searcher
from University of Pennsylvania in Portland, OR, USA

I purchased a plumbing business that operates in two states, Oregon and Washington. There is no reciprocity in licensing between the two states. Since it was an asset purchase, the new legal entity had to get new licenses rather than assume the ones already in place for the seller's company. In Oregon the license for the business required no plumbing experience, just proof of insurance and the details of the legal entity. The state controls the safety and quality of the plumbing work through requirements of licensing of individual technicians, independent of their employer. Washington required a licensed plumber assigned to the business as a responsible individual. This meant that the seller (also not a licensed plumber) and I had to bring one of the employees into the fold so that he could sign forms and take the position as the responsible individual for my entity before closing, making us legal on day one. That all worked fine. The process was purely a paperwork exercise, but it wasn't fast.

Whatever your industry and licensing situation is, I recommend putting the application as one of your first action items in the transition timeline. In retrospect, it would have been wise for me to invest a couple hundred dollars in government fees and start the process once I had a reasonable confidence we would sign an LOI. Every moment ended up counting in this bureaucratic effort and pushing the closing date for lack of license equated to tens of thousands of dollars of missed revenue per day.

Reply by an intermediary
from Arizona State University in Long Beach, CA, USA

Yes, if it is a contractor's license, it's not uncommon for the Seller to keep their license as an RME or RMO for a while. If SBA loan is involved it would have to be limited to 1 year. You will want to ensure you have a plan and can qualify to get the license in the agreed upon time frame or hire another RMO/RME or employee with the license.

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