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How To Hire A Good Attorney When Buying A Small Business

Contributed by Ron Hottes

"If a lawyer is serving his client faithfully and well, and if a client is using his lawyer effectively and appropriately, then a legal contract should allow for the same flexibility and ongoing goodwill as a handshake deal." Mark H. McCormack - The Terrible Truth About Lawyers

Businesses acquisitions come in all types and sizes, and so do lawyers, law firms and legal services. Hiring a good lawyer is very important because they can have a great amount of input over the success, or lack of success in purchasing a business. Careful selection of the right lawyer to guide you through the process of buying a business is critical. Most people spend more time shopping for groceries than they do for selecting a good lawyer.

Whether you are hiring an individual lawyer or a legal firm, there are certain steps you should follow.

1.   Interview the lawyer. Your interview should be polite but not deferential; never forget that the legal market today is a glutted market. Make your needs clear. What type of work does the firm or attorney handle? Are they familiar with small business sales and acquisitions? Ask whether there are any malpractice suits pending. This will allow you to determine their candor. Approach hiring a lawyer just like you would for hiring a manager to manage your business. Can you work with them? Will you feel comfortable making demands of them? Keep interviewing until you find someone with whom you are comfortable.

2.   Check References. Ask for references of buyers they have represented in buying similar sized businesses. Before using any firm or individual, be sure to ask those former clients questions like:

a.   Did the firm or attorney understand small businesses and understand the difference between giving guidance and making personal recommendations?

b.   Were you satisfied with the firm's or attorney's service?

c.   What bills and costs did you pay?

d.   Did the firm or attorney meet deadlines?

If you can't get the names of references, keep looking.

3.   Negotiate the fee. A retainer is an anachronism in today's glutted legal market. As a business person you have a better bargaining position with attorneys than you might think. Legal services are a buyers market and the fee arrangement with an attorney should be negotiated with this in mind.

Once you hire an attorney they need to understand your philosophy. They are there to give you guidance and counsel. Define the assignment carefully. For example, you may want to know if the broker's purchase contract can be used with minor changes. Otherwise, you are likely to find yourself paying $20,000 for a lawyer to draft a new contract from scratch. A $20,000 contract that is new, sometimes overly complex and unproven, not a contract that has successfully closed thousands of business sales. Remember the following in any contracts:

1. Keep it simple but make it complete

2. You want the contract to forge a relationship with a seller, not kill one.

3. It should reflect the quality of your mind

4. And, if it doesn’t sound like you, it’s going to be insincere to the Seller. You don’t want to be explaining what you meant to say, to someone who has a contract that has in it what you did say.

Defining your needs and narrowing the scope of assigned legal tasks is one way of saving legal fees and quickly closing on the business of your dreams.

Never forget that buying a business always contains risks. Owning a business contains risks. The determination you need to make, not your attorney, is whether or not those risks are reasonable and risks that you are prepared to assume. Lawyers can make a deal so complex and so frustrating that it can ruin a buyer-seller relationship. After you've closed on the business you are going to want a good relationship with the seller, therefore any contracts should help forge a relationship not kill one. You want the seller to be an ally, someone to call upon for advice when you run across problems or a change in the business happens. The odds are pretty good that the seller has successfully survived similar problems and similar changes.

A good attorney can give you guidance and counsel but make it clear to your attorney early on – preferably in writing – that you intend to retain sole and final discretion for any and all decisions. Never delegate any authority to your attorney.

About The Author:  Ron Hottes, with Business Team has a business brokerage team of 42 highly skilled and seasoned professionals with offices in Torrance, Woodland Hills and Newport Beach. Our business brokers have over 100 years of cumulative experience and the expertise to help you buy or sell a business in the Los Angeles County area. Reach him by phone at 310-539-8300.

Posted on September 27, 2011 | Email This Blog Post | Print This Blog Post | All Contributions From Ron Hottes

Categories: BizBen Blog Contributor, Buying A Business, How To Buy A Business, How To Sell A Business,

Comments:

Reading the article and your comments, I wonder who the commenters have used. Buying or selling a business requires a business transaction attorney, and not a genralist or someone who handles an occasional transaction. You don't go to a family practice doctor for a brain tumor, so why would one expect that any attorney will do? I have handled many transaction and my clients seek my opinion about the risks and identifying the risks is part of our job. However, our firm tries to focus on identifying the actual risks and not the theoretical risks, We communicate those risks to our clients and they decide whether the deal works from a risk versus reward standpoint. We advise them as what is customary. It's their decision. A competent attorney should be able to understand the business and point you in the right direction for conducting your due diligence. If you think about it, when you are buying a business you are hopefully purchasing a stream of revenue/income. A good transaction attorney will help you to acquire the assets and contracts necessary to continue to enjoy the revenue/income stream, identify the risks that realistically could disrupt that revenue stream and help allocate those risk between the buyer and the seller in the contract. It's not a matter of costs, it's a matter of value. My clients don't complain about my billings because they can easily see the value. However, we also always try to scale our costs to the size and complexity of the transaction; it's a cost versus benefit analysis.

Posted by: Michael Biggs, Biggs Law Group, L.C.

I'm glad to see this advice. People usually think they have to take their attorney's advice and some clients don't know enough to tell the attorney to limit his or her service to just looking over contracts but not to get involved in negotiations or in making business decisions. Thanks for this.

Posted by: Layla L.

You definitely want to seek out recommendations and check references when looking for a lawyer to hep in a business transaction. They all will sound competent when you interview them, but how do you know how well they'll work with you if you haven't checked up on them? It's not a bad idea to ask if there are any malpractice cases pending against the attorney. You may or may not get a straight answer. It's real important to find out how much experience they have involving sale of small businesses. Also, it's important to trust your "gut."

Posted by: Chaz A.

I'd like to know what attorneys Ron Hottes is working with. I haven't interacted with any who are willing to negotiate on their rates. Just finished a deal that cost my client plenty in his attorney bills. It wasn't $20,000, but still compared to the (small) price paid for the business, the attorney fee was a pretty big chunk.

Posted by: Alex Max

This is good advice. I'm glad to see it. I've witnessed deals that fell apart, not because the buyer and seller couldn't agree, but because someone had a lawyer who thought it was his job to handle negotiations and to tell the client whether or not to proceed with the transaction. Sorry lawyers. Your job is to check on the legal aspects of the contracts, not to give business advice.

Posted by: Steve C.