Let’s start this one off by saying we are absolutely not advocating an attorney-free business deal. A business transaction involves contracts that you will need to sign and a lot of money changing hands – so the assistance of an attorney is absolutely necessary.
Business transactions, however, are also inherently very complex and businesses themselves involve a decent amount of risk. If buying a business gave you a 100% chance of getting a return on your investment then that’s what everyone would do. This 100% scenario is, of course, far from reality. Buying and running a business means a fair share of risk and hard work.
What do lawyers do for a living? They protect their clients from any and all risk. See how your lawyer and a business transaction can never really agree with one another?
It is absolutely impossible for your attorney to keep you from any and all risk and also give you the absolute thumbs up on a business transaction contract. It is because of this conflict between what a lawyer does for a living and what you are trying to do (buy or sell a business) that we are suggesting that you keep your lawyer out of many parts of the deal.
What do we mean by this?
Your attorney doesn’t need to be giving you advice about price. Determining what a business is worth in the current market isn’t what they do. They don’t know how to derive value from cash flow and inventory or how to price a business based on what comparable businesses have actually sold for.
Your attorney shouldn’t have a major role in negotiations. At the end of the day, a deal is happening between the buyer and the seller. These two parties will have a tough enough time coming to a consensus – even when using intermediaries like business brokers who act as buffers. Adding more voices and opinions to the mix by having the attorneys intimately entwined in the negotiations more than likely means no deal will ever be reached. It becomes a “too many cooks in the kitchen” scenario.
I get why my attorney might cause problems, so what should I use them for?
Your attorney will be instrumental in putting together contracts and advising you of your risks in association with these contracts. You should absolutely listen to what they have to say in regards to these parts of a business transaction that are very much their specialty. You should listen to their advice, weigh what they have to say based on the fact that their job is to completely protect you from risk – and then use common sense to make up your own mind about what you should do.
Keeping a business transaction as simple as possible is the only way to successfully navigate a process that is inherently complex. Use each advisor for the role where their advice is the most appropriate and you will have a far better chance of transaction success.
Are you a buyer or seller who wants to have their attorney involved in everything? Do you have more questions about why this might be a problem? Ask us! Leave any comments or questions here and we would be happy to help.
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