04 Aug How to get more and spend less on lawyers when you buy a business
Grousing about lawyers and their fees goes way back.
Even Thomas Jefferson, a lawyer himself, said that “It is the trade of lawyers to question everything, yield nothing, and talk by the hour.”
I speak to a lawyer every day. And it doesn’t cost me anything. He has the office next to mine!
Kidding aside, when you go to buy a business, you need a good lawyer on your team. But why pay more than necessary for their advice.
In buying a business, the key to saving on legal fees is engaging the right lawyer to act at the right time.
- Use a specialist—most lawyers are focused on other legal practices and not familiar with tax and transaction and intellectual property law.
- Get an estimate of fees before starting the legal work.
- Make a conditional, non-binding offer and refundable deposit.
- Instruct your lawyer to run everything by your business broker before it goes to the other party’s lawyer.
- Understand that because their job is to protect your interests against all conceivable risks, the safest recommendation they can make in every situation is to not take a risk.
Use a specialist in tax and business transfers
Choosing the right legal adviser means finding experts who have actual experience in buying and selling businesses and who understand their role in the process. I strongly recommend using a specialist for this work, not a lawyer who normally deals with real estate transactions, litigation or criminal law. Lawyers who specialize in tax and business transfers have the templates, they understand the most appropriate structures and they have been through this many times before.
Get an estimate of cost prior to starting the legal work.
Fees vary with the size of the acquisition, the complexity of the transaction, the fee structure of the law firm, the skill and experience of the lawyer, and the competence and level of cooperation of the law firm the seller has engaged.
The cost is also influenced by your attitudes and actions and by how timely and diligently the seller provides documentation. Third-party financing requirements can also significantly affect legal costs. Fees can range from $2,500 to $150,000, but generally do not exceed $20,000 for transactions of $2 million or less. There are many excellent lawyers whose fees represent great value to their clients. Ask your business broker for recommendations.
You do not need to involve a lawyer if you are making a conditional, non-binding offer to purchase. However, their involvement is essential later in the process for legal diligence and the drafting of the agreement of purchase and sale, and related documents.
We recommend that offers contain a clause making the offer conditional upon structuring of the transaction and drafting of an agreement of purchase and sale being acceptable to both parties and their legal advisers. This allows the parties to negotiate through their business broker to reach a set of terms acceptable to both parties without spending money on legal advisers until due diligence and closing.
Your lawyer will talk with you, your business broker and the lawyer for the seller. Your lawyer will not talk directly with the seller. The seller’s lawyer will talk with the seller, the business broker and your lawyer, but not directly with you. The only person communicating directly with everyone is the business broker. Instruct your lawyer to run everything by your business broker before it goes to the seller’s lawyer and the seller will give similar instruction to his lawyer. That way, there is much less chance of the deal going off the rails.
Recognize that most lawyers are not entrepreneurs. Their focus will be on the problems, not solutions. Because their job is to protect your interests against all conceivable risks, the safest recommendation they can make in every situation is to not take a risk. You are ultimately the one who makes the business decision based on your talents, expertise, instincts and entrepreneurial goals. You must decide if the risks are acceptable.