They had just bought a restaurant.
The seller had let the entire staff go before closing, but the new owners decided to rehire the same team. Not for convenience, but for humanity. These were people with families. People who knew the job. People who deserved a second chance.
It felt like the right thing to do.
Until several months later, when they received a bill for nearly $50,000 in back unemployment taxes.
Why? Because in the eyes of the state’s employment department, rehiring the former staff meant they were considered a “successor employer.” That reclassification meant they inherited the previous owner’s unemployment insurance tax rate — a significantly higher rate than a brand-new business would have received.
If they had hired entirely new people, they likely would’ve qualified for a lower, new-business rate. But because they chose continuity and compassion, they got penalized.
No heads-up. No warning. Just a costly surprise that strained their already tight budget.
They didn’t take a paycheck.
They lived off savings.
They did everything to keep the business — and the team — afloat.
And the system punished them for it.
The Hard Truth: Intentions Don’t Override Structure
This story hits home because it reveals a painful truth for many new business owners: the system doesn’t reward good intentions. It rewards strategic structure.
Here are the key takeaways for anyone planning to buy a business:
1. An Asset Purchase Doesn’t Always Mean a Clean Slate
Even if you structure your deal as an “asset purchase” instead of buying the business entity, you can still be treated as a successor, especially if you maintain operations, location, branding, or staff. That can trigger tax, legal, and employment carryovers you didn’t expect.
2. Employment Law Can Be a Hidden Trap
Most buyers focus on P&L statements, lease terms, and inventory. But who you hire — and how — matters. Rehiring former employees may sound like a no-brainer, but it can create long-term liabilities if not handled carefully.
3. Brokers and Advisors Matter — Choose Strategically
This could have been avoided with the right team. A qualified broker, employment attorney, or CPA familiar with business transitions should flag these risks during due diligence.
They can help you structure your hiring in a way that avoids legacy tax issues.
4. The System Doesn’t Always Make Room for Empathy
We often discuss the importance of small businesses in our communities – that they’re the backbone of the country. But when the systems that govern us penalize business owners for trying to preserve jobs, we have to ask: For whom is the system really designed to support?
5. Structure Is Protection
Ultimately, this is about one thing: protection through intentional design. Good intentions are important. But protection comes from planning, not just from the heart, but with your head.
A Note to Business Owners:
If you’re thinking about buying a business — or you’re in the middle of a deal — take a moment to zoom out. Who’s on your team? Who’s reviewing these structural decisions before you sign? Who’s protecting you from “surprises” that show up months down the road?
If you’re not sure, we should talk.
I help business owners structure acquisitions with clarity — and avoid costly mistakes like this one. Let’s keep your focus on building, not backtracking.
What’s one thing you wish you’d known before buying your business? Leave a comment or send a message — I’d love to hear your story.
Book an appointment now
Marcelo Bermudez, CEPA
Chief Executive Officer
Shōkunin, Inc.
Capital and Strategy for Commercial Real Estate and Business
E – mb@marcelobermudezinc.com
C – 213.453.9418
https://www.marcelobermudezinc.com
https://www.linkedin.com/in/marcelobermudez/
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