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How To Hire A Good Attorney When Buying A Small Business

"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.

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

Comments Regarding This Blog Post

I enter this discussion with a unique perspective: currently I am a business broker, I have at several times been a business owner and seller, and I am a lawyer (licensed in New Jersey) who has handled many purchase and sale transactions as the attorney for one side or the other.

I, too, have to take exception to Ron's assertion that "the legal market today is a glutted market." Sure, you can't walk down any city block in California without bumping into someone with a law degree; but, when it comes to business transaction attorneys with the experience and expertise to represent their clients effectively, efficiently, and expeditiously at a fair and reasonable fee the field becomes very sparse.

So, the prospective client asks, "Do I need a lawyer with such credentials or will any empty suit that managed to pass the bar exam do just fine?" To which I answer, "Don't patronize a store that advertises 'Cheap Parachutes' for sale!"

The best attorney is generally NOT the cheap attorney ... and finding one with the ability to make a good deal better and keep it on track, while at the same time having the foresight and fortitude to tell you when to kill a bad deal is not easy. If you want a professional worth hiring, you need to expect to pay accordingly. Frankly, a cheap lawyer is worse than no lawyer at all -- they can give the client a false impression of actually having their interests protected when, in fact, the lawyer is way out of his league.

Hence, the retainer. This is a deposit against work to be done. it can be structured as a flat fee for service that is nonrefundable; but, typically the retainer is paid against future work with any unused balance refunded to the client. It's for the same reason that business sellers require a good faith deposit before entering into due diligence: to affirm sincerity, seriousness, and ability to pay. Any attorney with any kind of professional value can pick and choose his clients; the retainer weeds out those who are not serious and will become a burden later. Frankly, I would be highly suspect of the credentials of a business transaction attorney who did not require a retainer; he must not value his own services very highly and must be desperate for clients---not a good sign!

Ron makes many good points, particularly about interviewing your prospective attorney and getting references. I respectfully disagree, however, with his thoughts on retainers and the "glutted" legal market.

I require retainers before working with clients because it allows me to focus on what I do best, practice law, rather than on following up with clients to collect. In return, I can offer a reduced rate that allows small businesses to work with me that wouldn't otherwise be able to. If I don't do all of the work we initially anticipated for any reason, the retainer balance belongs to the client and is refunded at their request.

While I agree that the legal market is still glutted in general, I have not seen a glut, at least in Southern California, of attorneys qualified to handle small business transactions. I tell clients from the start that I'm not going to be the least expensive option (though I'm certainly nowhere near the most expensive), but I should be a good value.

I would advise anyone looking for an attorney to handle their business sale or acquisition to approach their search from that same value perspective. The primary question a buyer or seller should be asking isn't "what's your hourly rate?" or "how much is this going to cost?" but rather "What am I going to get for my money?" and "How much is that service really worth to me?".

I had one client spend less than a thousand dollars with me and save a $100,000 deposit they would have lost in a fraudulent transaction. I've had others who spent a few thousand dollars and saved 20-40% off the price they had already negotiated on the business they were purchasing. That doesn't happen every time, but that's the type of value that's hard to define by comparing hourly rates.

Unfortunately I've found that what may seem like a bargain hourly rate will often end up costing the client much more than they expected -- whether their attorney charges for every last call or email .

Finally, while I agree with Ron in general about finding an attorney who can make a deal rather than kill it, it's important for your attorney to have the strength to kill a deal when it needs to be put out of its misery. With 20+ years of experience on the client side, I can find a way to make most deals work, but they have to work for both parties to make sense.

If you're a buyer, remember that there are many businesses out there. The deal you walk away from may be end up being the best deal you make.

When looking for a good attorney to work on a business transfer, ask a business broker for references. We work with attorneys all the time and, through our own experience, we know who are the "deal breakers" and who are the "deal makers." You want a lawyer who is going to protect your legitimate interests and shield you from potential liabilities at a reasonable cost and in a timely manner, but who will also strive to achieve your ultimate purpose -- making the deal work. As business brokers, we know which lawyers will waste your time and your money and kill your deal; and, we know those that will return calls, listen to your concerns, meet deadlines, work efficiently and effectively, get the deal done if at all possible without putting you at inordinate risk, and charge you fairly for their expert service. Ask us for not one, but a few recommendations; and, then interview them to see who you are most comfortable working with.

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Diane Boudreau-Tschetter: Escrow And Bulk Sale Services

California Business Escrow, Inc. is a full service independent escrow company serving all of California and has expertise in a wide range of escrows. Our team prides itself on providing an exceptional escrow experience. For more info phone Diane Boudreau-Tschetter at 888-383-3331 or 209-838-1100.

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Janet Carrera - Escrow & Bulk Sale Services - SF Bay Area

Redwood Escrow Services, Inc. is a full service, licensed independent escrow company. We are EAFC Fidelity bonded, fully insured & licensed with the Department of Corporations. Committed to offering our clients the most comprehensive variety of escrow services available. Phone Janet at 510-247-0741.

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Bob Baumgarten, Business Broker: Orange, LA Counties

National Business Brokerage is a full service brokerage company that has been serving buyers and sellers of Southern California businesses since 1994. We are dedicated to providing the highest standards of professional service for our clients. Phone Bob direct at 949-588-8727.

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