By BRIAN MILLER
The Miller Law Firm
You put your business up for sale on a lark. You were just testing the market, trying to gauge the value for your small business. You hired a business broker, who said she would take ten percent (10%) and told you she could get you a value for your business that you considered a pie in the sky number. You figured nothing would come it, but then one morning when you are chugging down your morning espresso, you get the call all small business owners dream about. “We have found a buyer willing to purchase at your asking price!”
You swerve off the road and a rush of emotions flood through your head. Did I lowball my business? Can I survive off of this number for the rest of my life or will I need to do something else? Then a small voice in your mind whispers, It’s over. It’s finally over. No more fighting to make payroll every month, no more fluctuating paychecks (‘I’m rich! ‘I’m poor!’) no more end of the year benefit increases anxiety, but also, no more dinner write-offs, no more company car, and no more being the boss.
After you recover from your initial shock/jubilation, you need to move forward. The broker tells you she will send over the Letter of Intent, and the first you think is what do I need now. It is highly likely you need an attorney. Most people hate attorneys. My whole family hates attorneys. At every family gathering, every relative takes a turn delivering the most recent attorney joke. The most common complaint you hear (besides crooks, scoundrels, snakes, etc.) is that attorneys are overpriced and useless. You can do it yourself and there are lots of websites and resources to help you do it yourself.
Full disclosure: I am an attorney and I am here to tell you that you can do it yourself. You can also cook a great meal for yourself, but sometimes you prefer to go to a certain restaurant because the chef knows more than you, or he or she may have more experience cooking a certain meal than you. You could diagnose yourself with the common cold, but if the cough and congestion continues indefinitely and you don’t see a doctor, you won’t know if there is something more serious you have overlooked, so it is with your business. If you are selling your most prized possession and you are willing to pay a broker to help you sell that possession, does it not make sense to pay someone to ensure that you get the deal right?
But what about the costs? Many firms, including the Miller Law Firm, P.A., will give you an upfront estimate after you give them a brief outline of the deal. How do you save money on your attorney and what does your attorney need to do?
1. HIRE YOUR ATTORNEY FIRST: Do not sign anything related to the transaction until after you have brought your attorney on board. This is counterintuitive to most clients. Most clients believe they will save money by hiring their attorney later. This is rarely the case. It is easier for an attorney to help finalize the deal if he or she is involved in the beginning. Attorneys can help you pick the best legal structure for selling your business. Sellers should know how they want to sell their business before offering it for sale.
2. REVIEW THE BROKERAGE AGEEMENT: The Miller Law Firm, P.A. would want to review the brokerage agreement to ensure the client understands the fees involved with the broker. A quick review can sometimes save thousands, but at a minimum it is important to clearly define how the broker gets paid.
3. EVERY PROSPECTIVE BUYER MUST SIGN NDA: If you have a standard non-disclosure and confidentiality agreement (often referred to as a “NDA”) then ensure your broker presents it to every prospective buyer prior to entering into discussions about your finances. If you do not have one, you need one and it should be vetted by an attorney. Simple documents sometimes cause the biggest legal headaches.
4. BEWARE THE LETTER OF INTENT: Do not sign the letter of intent without an attorney reviewing. Be careful. While letters of intent are typically non-binding, there can be language that is binding on the parties.5
5. RED ALERT! PURCHASE AGREEMENT! RED ALERT: If you have failed to get an attorney at the beginning of the process at a bare minimum do not sign the purchase agreement until an attorney has reviewed. The Miller Law Firm has experience in helping clients negotiate their way out of bad purchase agreements, but if you are trying to save costs and sign a bad deal, you will spend more money negotiating your way out.
6. KNOW THE BUSINESS TERMS: You want to save money? Negotiate the business terms ahead of time. The attorney does not know how much your business is worth. A diligent seller should have had a valuation done beforehand. Many brokers will offer their opinion. The Miller Law Firm also encourages sellers to consider a business valuation from a CPA. But this should be done prior to negotiating the terms of a deal. An attorney can help you negotiate the price, but negotiations cost money. Use your broker for the business terms and ask yourself the following questions:
- Is the payout structure? Are you self-financing?
- Is Buyer demanding an escrow?
- Does Buyer want you to sign a non-compete? Can you live with the restrictions?
- Does Buyer want you to provide consulting services? For how long? Will there be compensation? Do you need benefits?
- What are you selling to the Buyer? Are there assets you will be retaining from your business?
The more business questions you answer on your own, the easier it is for the attorney to assist you, and the less resources you will spend negotiating items which are not purely legal. Lawyers can always help with all the terms but use your broker when it makes sense. The Miller Law Firm works with seller’s brokers and clients in helping them determine who best to negotiate certain items — the broker or the attorney.
Finally, selling is not easy. You have made a decision to sell. You have a buyer and you want to get it done tomorrow. It took you years to build up your business. Exercise the patience and utilize the resources needed to sell it right and for the buyer to buy it right. Informed sellers and buyers are far less likely to engage in lawsuits down the road then those who just try to wing it through the transaction process.
The Miller Law Firm, P.A. is happy to assist sellers and buyers. Both parties have different interests and The Miller Law Firm, P.A. can help clients understand where their interests align and where they diverge. Give us a call at (864) 527-0413, or email us at [email protected], or through our website www.themillerlawfirmpa.com if you would like to set up an appointment. Mention this article and you will be entitled to a free 15 minute consultation to help you get started.