Hiring the Right Attorney When You Buy a Business

Attorneys have their role in the business-buying process and yes, there are plenty of them who are deal-breakers, but that generally happens when a buyer hires the wrong one. A good attorney will help make the deal happen, and you need to understand their role and how to find the right one.

I just received an email from a visitor to our website who went on about how an attorney they hired “completely blew the deal and the seller won’t deal with them anymore”. He told them that he was “only looking out for their best interests”. He was highly recommended by a family member. I also learned that he was a specialist in patent law. That is just wonderful. The problem is this person was buying a three store retail chain.

Mistake number one – they hired the wrong attorney.

Now, you may be saying, an attorney is an attorney – right? Wrong! If you have a toothache, would you go to a foot doctor? Of course not! So if you’re buying a business, then you need an attorney who specializes in transaction law. Ideally, you’ll want one with experience in transactions of businesses similar in size and type to the one you’re buying.

An attorney plays a very important role, but you need to know what it is. They should not be your negotiator except for any overly complex situations that may require the buyer’s and seller’s counsel to make headway.

Good deals get done between the buyer and the seller and then the attorneys simply scribe it properly. As such, you have to be very clear with them about what you and the seller have generally agreed to and then it is up to them to help you get the deal done in a legal sense.

You want them to bring all the potential issues to your attention. You need them to offer sage advice about any possible exposure you may have. You want them to review any documents that you sign. They need to draft documents that reflect the local law. They are the ones that can effectively assemble closing documents along with any brokers involved. But that’s pretty much the end of it.

You definitely need to consider every issue that your attorney raises but when all is said and done, YOU have to make the decisions.

There is almost always going to be some element of risk in a deal. I have yet to see any deal that is absolutely bulletproof. A good attorney will outline the risks but will also present real-world scenarios. Of course you need to be adequately protected and some parts of the deal are more important than the other. If your attorney tries to hammer the seller into submission, the deal won’t get done.

Buying a business involves a lot of moving parts and clearly having the right team of advisors at your side will make a huge difference. But at the end of the day, you’re the one who has to lead the team.

Comments

[Dylan Garland]

Great posting Richard! I couldn't agree more. Bottom line: only work with an attorney who has actual experience in small business transfers. Do not try to save money by using your cousin who's fresh out of law school, or your uncle, the public defender. Buying or selling a business is too important to leave in the hands of an attorney who doesn't have actual, hands on experience, with these kinds of deals.

[Gregory Garver]

Wow, this is a very good article. Richard we always advise our clients to have an attorney examine the deal. http://www.gregorygarver.com

[Bob Swift]

Very nice article. Although I have found that some attorneys have boiler plate agreements for any and all transactions. Not always a good idea for larger deals. Also, how do attorney's price their services as a closing agent? is it a % of the sale amount or flat fee pricing based on the type of sale.

Thanks

[Richard]

Terrific feedback folks! Gregory is 100% correct that both sides must have an attorney review all agreements and having the right one is crucial.

Bob's point about template agreements is so true - I think it's a cop-out that most attorneys have these default agreements. While they may be acceptable as a working document, the parties MUST make it their own by having conditions and verbiage that reflects what the buyer and seller have agreed to before the attorneys mess it up.

The point about fees is hard to comment upon. Some attorneys will charge a percentage of the deal and others a flat fee. What's most important here is to know the fees in advance (as best as possible and assuming no unforseen issues arise) and also the parties should know that attorney fees are not cast in stone - so negotiate. Regardless, above all, just like a business, it's always better to overpay a bit for the right one than it is to get the wrong one at a bargain.