Where do I find these professionals?
Other business owners, Business Brokers, Business Advisors and business based Accountants are all your best resources. It is not recommended to look one up in the phone book or on the internet. They should be local to you and/or your new business venture if possible, but it’s not necessary. Hopefully, once you sign the deal you will never need to use them again until you are looking to sell.
What are the best hiring criteria?
I don’t think I have met a lawyer who has done at least one business related contract that would tell you he/she can’t handle a business purchase transaction. Although many transactions are very simple when performing an asset based purchase (as most are), experience in an actual buy/sell transaction is a must. It is especially essential if buying a business with environmental issues involved such as a gas station or car wash or with licensing issues such as a bar. If this is not the case, I would recommend asking about a flat fee for their services. Many will do that if they have the experience (like they should have) in transactions with the type(s) of businesses you are looking at.
There are plenty of solid choices in Attorneys that you will come across but you must feel absolutely comfortable with them. Lawyers tend to make people feel like they are inferior. This may or may not be intentional, but it happens just because legal matters that most people have no clue about are involved. This must not interfere with the fact that YOU are hiring the Lawyer, they are not hiring you. I can’t stress enough how important this is since Attorneys are known to be total deal breakers even in a perfectly cut and dried transaction.
Also, contrary to what they may think about themselves or may tell you, most Attorneys are not good business people. So don’t even waste your time looking for a Lawyer that can give you business advice. What matters is their experience from a legal standpoint in business buy/sell transactions for the industry you are looking to buy into.
When should I hire one?
Please heed this warning on the subject of bringing an Attorney into the fold. Once you are absolutely ready to look for a business, you can start looking for an Attorney. Meet with them and be clear that you want to find the right person to help them and when you are ready, you will retain their services.
The time to bring them in completely often stems from the type of business you are buying. Again, if there are any state or federal regulations or licenses involved, they should be brought on board when you start due diligence. If this is not the case, then get them involved when you are at the end of your due diligence and certain you will be going through with the deal. Up until the point that the due diligence period ends, you are not legally obligated to buy the business and you really don’t need to start paying for a Lawyer.
What will they do for me?
If there are state and federal issues to be checked out about the business and the Seller(s), your Attorney should be doing these background checks for you during due diligence. Some checks take a while to get back so they might as well be started as early as possible. This shouldn’t be a problem to you if you have done your prep work and submitting an offer to start the due diligence was a wise decision.
Buyer Attorneys will be tasked in making sure all of the contingencies that were met from the letter of intent during due diligence as well as the other necessary agreements are transferred over to the purchase contract. Be sure to remember you are the boss here! Do not let your Attorney or the Seller Attorney drag things out! They should both just be translating your verbal and written agreements with the Seller into legalese and making sure it gets on the contract. Keep it simple. They should also be drafting a non-compete for the Seller to sign to protect you from having them become your competition anytime soon after the transaction is finished.
Ask your Attorney to explain to you anything they feel should be covered for your protection in the non-compete and purchase agreement. If you feel it will hinder the transaction or disrupt your relationship and previous agreements with the Seller when at the closing table, that is your decision to make or dismiss. Letting either Attorney run amok will cause major delays or possibly shut down the deal. Not only will this cost you money for more work by your Lawyer, but it may cause you to lose any deposits you have made.
How much will it cost?
I would like to tell you that this transaction will not cost much. If you have ever closed on a house, you know you always feel like you paid too much. This is more complicated so if you thought a house closing was expensive by way of attorney fees, this might not make you too happy. It also may not be as bad as you think.
First off, just like with a house, if you can, try to ask for a flat fee. For a simple straight forward business with no federal or state regulations and licenses involved, this should not be a problem. It will definitely make your Attorney do his/her job efficiently and probably even better than with a floating retainer or hourly arrangement. A flat fee can run from $1200 to $2000. That’s really not too bad. If a flat fee is not an option, you may see rates of $120-$300 per hour. I have to say that usually you are not getting any better of an Attorney at the high end versus the low end if they have the experience. But what you are dealing with is a better negotiator. Either way, it doesn’t hurt to ask for a lower rate.
If that doesn’t work, and you still like them, be prepared to do as much work for yourself as possible regarding making sure all of the points get covered in any docs they are preparing and all of the standard clauses are included. Don’t let them hunt things down that you can get or dictate yourself. That being said, an hourly arrangement can get ugly if you don’t keep control of the situation, but you are looking at a range of $1200-$3000 for a typical small business transaction.
To sum it all up… don’t be afraid of your Attorney. You hired them and you can fire them as well as give them a good or bad review to your other business owner friends. They need to keep that in mind and so do you. It’s your new business that you are buying and you have been in the mix of finding it, checking it out and negotiation the deal since day one. Be a part of the transaction as much as possible and let them do their job, which is to translate your needs into a legal format.