So one of your LOIs finally got a response and you’re now in talks with a biz seller?

Bravo!
But don’t put your leg up. Now, it’s time to dive into all the fine print…and here’s where it gets tricky.

Insider tips on how to ALWAYS get your money’s worth from your lawyer

The first thing you want to do is get a transactional lawyer on your team. And no, it doesn’t matter if you’ve bought a zillion businesses before, or if you understand all the Latin there is…a lawyer is the one thing you never want to skip.

Why?
Because a good lawyer is a high-quality set of second eyes. Think of them as your left tackle, fending off all the potential deal killers as your acquisition heads for a touchdown. There’s a reason they spend 3 years in law school. Those eagle eyes could spot legal loopholes yours and mine never could.

But here’s the million-dollar question…
How do you find a decent one?

Finding the Right Counsel for Your Deal

• Go local

It’s no secret that business laws vary from state to state, which is something you may want to keep in mind when choosing your legal counsel.

Pitching your tent with a local firm that knows the laws of your state will always be your best bet. And in cases where your state has licensure requirements, it’ll be your only one.

• Use your existing network

Finding a lawyer for your deals doesn’t have to be a hectic exercise. Sometimes, the right attorney for you might just be a neighbor, co-worker, or Twitter follower away. All you have to do is tap into your network.

You can also adopt this approach when vetting attorneys. In terms of scale, you typically want to skip small and large law firms and target mid-tier practices.

This is because small firms tend to be at the bottom of the pecking order while large firms are impossible to get on the phone once a deal bigger than yours walks through their doors.

• Reach out to multiple attorneys

One lesser-used tactic is having multiple attorneys pitch for your business. There’s no rule against getting two lawyers on the phone at the same time and laying your questions on them.

Listening to them play off each other and pointing out the disparities in their answers can be quite the learning experience.

But keep in mind that will only work with firms you’ve never made contact with. Lawyers tend to go pro-bono on first calls with potential clients.

You’ll also want to do your due diligence. Getting every relevant piece of info from the seller will help you ask intelligent questions and not, you know…waste your attorney’s time.

Managing your Legal Counsel

Believe it or not… you must manage your lawyer just as you would an employee.
This means clearly communicating deadlines, budget, and everything in between.

• Compensation

Like with everything in life, people always want the best. However, the best doesn’t always come cheap.

A good lawyer won’t be any different. Regardless, there are ways you can get competent legal counsel without racking up a huge bill. 
One of the first things you should iron out with your lawyer is compensation. While most people’s go-to solution is billable hours, that model doesn’t necessarily make sense for you, the client.

Instead, propose a hybrid model that uses billable hours, success fees, and other incentives. By doing this, you’ll be motivating them to close your deals quicker than they usually would.

• Expertise

Here’s where you make sure you’re talking to an attorney with concrete experience in SMB acquisitions. You should find out stats like how many deals they’ve done.

Structuring your Deal

While the nitty-gritty of your deal structure should be left to the legal experts, it’s still always crucial to have the basics covered.
And that’s why as the buyer in any SMB acquisition, you should always ask your lawyer these three questions:

• How do I maximize this transaction for taxes?

Most people only focus on revenue and cashflow when buying a business, often ignoring an equally important $ factor:

Tax.

Your starting point in any deal should be to talk to a tax lawyer about how you can maximize your tax benefits. Doing so will save you more than a couple of pennies down the road.

• Are you structuring this deal as an asset or stock purchase?

When it comes to SMB acquisitions, there are only two types: Asset and Stock.
In an asset purchase, the buyer gets to buy the individual components of the business. In other words, they get to pick and choose what parts of the business they want.

In a stock purchase, the buyer gets the entire business…including all the debt and historical liabilities.

It goes without saying that an asset deal is more likely to be in your best interest. But on the off-chance that it isn’t, having your lawyer explore the possibility of a stock deal is something you’ll thank yourself for.

• What’s the Purchase Price Allocation and what formula are you using?

Schedules are fickle and change like Bitcoin charts. Being in on categorization and depreciation allocation will help you know the current state of the market, especially if you plan on making more SMB purchases in the future


Yours Unconventionally,

Codie Sanchez & Ryan Snow
Co-founders Unconventional Acquisitions
 

Register for the course here OR if you are serious about buying a small business, join our Mastermind.