A Conflict of Agents: How Attorneys Kill Deals

Russ Allred MBA 

A business broker’s job is to bring a willing buyer to a willing seller and draft a deal that benefits them both.  A typical deal, with SBA financing requires that the seller carry some paper, ensuring ongoing oversight for the new and inexperienced buyer.  A cooperative working relationship is essential to a successful deal.  The broker’s compensation depends on both sides accepting the deal and working together.  This past month I spent negotiating, cajoling, encouraging and babysitting the buyers and sellers of two deals that had been polluted by the influence of their respective attorneys.   

I have many attorney friends.  I required the advice and services of attorneys to represent me in a commission dispute.  An attorney prepared my family trust, helped me incorporate my business, and attorneys refer me as a receiver to mitigate losses while business partners work out their differences.  I like and need attorneys and my Business Broker Code of Ethics requires me to recommend my clients seek the advice of an attorney, but when it comes to selling a business they can be deal killers.

The job of an attorney is to aggressively represent one side.  They get paid based on the time that they work.  It is to their advantage to foment discord between parties.  Attorneys decry that business brokers have a conflict of interest because they may represent both the buyer and seller in a transaction.  They seldom see their own conflict of interest, in that their client wants to do the deal.  Their job should be to facilitate that transaction and prepare against a worst-case scenario. 

In one of the deals I had to save this month, I negotiated a $2.3 million dollar compensation package for my sellers.  My client had previously hired a broker who listed their business for only $1.6 million.  It was truly the best deal that anyone could have offered them.  The buyer demonstrated his competence by negotiating an SBA loan, and had a back up loan with another willing lender.  In my 36 year career working with businesses, the situation was unprecedented.  The Sellers specifically said to me, “We really like these buyers.”

The sellers hired their attorney to prepare the stock transfer.  As the transaction progressed, the attorney also prepared the seller carry note.  A job that escrow usually does.  As is often the case, the purchase loan was delayed due to bank requirements.  The sellers started to refer to the buyers as “incompetent, inexperienced.”  The seller carry note became more restrictive.  The sellers tried to infuse punitive damages on the buyers for delaying the deal.  When the loan was funded, they refused to provide the transitional consulting that they originally agreed to.  When the buyer had questions about the new requirements the sellers’ attorney told the buyer to have their attorney call her.  Their business broker certainly didn’t advise these actions.  The contention came from the attorney.  In the end the sale was consummated on the terms I had originally suggested, but the parties are off to a very bumpy relationship.  The attorney nearly killed the deal and on her advice the sellers may yet lose the $300,000 they are carrying. 

When you seek the advice of your attorney, take charge of the transaction.  Make your best deal and instruct the attorney what you want them to do.  They work for you.  Keep a lid on the cost by controlling the time they work.  Above all, recognize that you can’t sell your business without a buyer and the buyer must be successful to pay you.  Don’t let your attorney put a wedge between you and your future.

Show me the $$$$

Perry Angress

I have a constant flow of buyer leads for business opportunities. But not all Buyers qualify. The first item of business is to have all of my potential buyers sign a Confidentiality and Non-Disclosure Letter. At the same time, I ask the Buyers to provide a copy of a Bank Statement or some proof of liquid assets.

 I have found that if a buyer has no liquid assets, or assets that can be converted to liquidity, the chances of moving forward to assist that buyer is slim to none. There are other methods of bringing the buyer funds to purchase, these include: Family, Friends and of course outside investors.  I have had a parent provide funds to purchase for their offspring. In those situations, I ask the parent to sign the purchase agreement for the business as means to provide them a position of control.

 Money is key to buying a business, having enough to purchase the business is not enough to fulfill opportunity to succeed. The Buyer should have savings for what the business produces in gross sales in 6 months. This will allow the buyer to meet expenses for payroll, taxes, inventory, Cost of goods, insurance and rent should the business have a slowing sales cycle due to any economic fluctuations.

 “Show me the Money! Is my basis for bringing a qualified Buyer to the negotiation table with my seller.

I have had times where a buyer would ask if they could have a Seller Carry back financing on a purchase. This is almost never an issue if the Buyer has the financial capability to keep the business operating and has enough money to put down usually 50 to 70% of the selling price. It comes down to building a trust relationship between the Seller and the Buyer.

 So if you’re interested in selling your business and looking to have an experienced Business Broker bring you a qualified Buyer. Call me anytime!