How NOT To Choose A Business Lawyer


#businesslawyer #negotiations

12 Sept 2019

[Sydney, Australia] 

A common mistake business owners make is to get too sentimental with the choice of their business lawyer, or choose a lawyer based ultimately on price. This is a mistake because your business lawyer can make or break the sale. Quite often, business owners will nominate their own, preferred lawyer for the sale of their business. The reason for this is familiarity. The business lawyer could be a family solicitor that they have always used in the past. Or a referral from a friend without any basis for competency in the area of business sale. Or just cultural familiarity because the lawyer happens to speak the same ethnic language. But sometimes, I see familiarity breeds contempt. The better the lawyer knows you, the more they know they can let the ball drop without any consequences. This can prove disastrous for you.  

contract signature

A good business lawyer should get both parties to exchange the Sales Contract ASAP without delays. Photo:

A good business lawyer must understand the overall picture and needs of their client. Helping you to exit your business must be the over-arching and ultimate objective. When sellers choose a lawyer for reasons of familiarity or price, and not on competence, they are taking a huge risk that their lawyer can actually scuttle the sale. The difficulty is, unless a lawyer has helped you to sell many businesses, you'd have no way of knowing if the lawyer is good at this, even though they may have proven themselves competent in other jobs. After having seen many, many sale, I have both the experiences of dealing with good solicitors and bad ones. Still, I get resistance from clients if I dare suggest a good business lawyer. A common question is, aren't business lawyers all the same? Big mistake. One of the most common issues with lawyers is what I call 'sitting on your file', which means that your case isn't getting the attention it deserves, and has been ignored or placed on the bottom of the to-do list. It makes sense. Your business lawyer has many more other income-generating cases. They may not see selling your business with the same urgency or priority as you do. This is especially true of lawyers who charged bare-bone prices. The old axiom still holds true: you pay for what you get. When a buyer puts a deposit down to buy your business, your lawyer must act quickly to get the sales contract out to the buyer's solicitor without delay. In NSW (Australia), this is because the deposit is 100% refundable until the sale contract is signed and exchanged. The longer this is delayed, the chances of the buyer having a change of mind rises steadily with each passing day. Some buyers expect the Contract For The Sale Of Business to be delivered in 24 hours or less. Initially the buyer is excited and enthusiastic, so you must hold this interest by keeping the momentum moving forward. If your business lawyer is slow in getting the sales contract out by days or even weeks, your buyer may get buyers' remorse (or Post-Purchase-Dissonnance) In their quest to reassure themselves of the purchase, buyers may reach out online for similar businesses to 'justify' their decision. And before long, the buyer finds another business just like yours, but perhaps closer to home or with higher turnover or lower rent. Thus a mental note has been made. The seed of doubt has been planted and the sale could already be in jeopardy. By the time your lawyer delivers the sales contract to the buyer's solicitor, buyer enthusiasm may have waned. Buyer anxiety and fear may start to set in. When negotiations over the sale contract go into rough waters, the buyer may be less accommodating because they know they have better options lined up. Or the buyer is just not as keen anymore as too much time as lapsed. And the sale may be lost.  

Negotiation Skills In selling your business, your business lawyer must possess outstanding interpersonal and negotiation skills. However, this is sometimes very lacking in some lawyers. Your lawyer needs to competently navigate, negotiate and diffuse the issues with the buyer's solicitor, the landlord's solicitor, the franchisor's solicitor (if any) and any other parties relevant to the sale. The success of the sale depends on the interactions of these parties and some of these people can be difficult to handle. However, if your lawyer is the problem in the negotiations, this may frustrate the buyer into not buying the business or the landlord in not approving the lease transfer. I had a seller on the cusp of selling her multi-million dollar business. The buyer's solicitor has categorically rejected the idea that her client (the buyer) should sign a personal guarantee for the penalties subscribed to in the sale contract. So I picked up the phone and asked the seller's solicitor, "if the buyer decides to pull out of the sale, what would be the seller's loss?" The seller's solicitor replied, "a few thousand dollars to cover legal fees." Thus I reasoned, "What do you think matters more to your client (seller)? Getting the business sold for XX millions or fuss over loose change? So, you'd rather risk sinking the entire sale because you want a personal guarantee from the buyer to cover a few thousand bucks?" Both the seller and buyer were relatively well-off and legal fees wasn't the least of their worries. The seller only wanted to get her business sold! There is also a cultural nuance to this sale. The parties are Chinese. In their culture, trust, relationship and up -keep of 'face' (avoidance of embarrassment) is paramount to the sale. To demand a personal guarantee over legal fees (seen as a very small amount) is an insult to the integrity of the prominent buyer and not 'giving face'. The sale was on the verge of collapse, until I stepped in and saved it. How do you teach cultural sensitivity, good judgement, proper human-interactions and negotiation skills at law school? You can't. Hence, some business lawyers are unable to diffuse situations when they encounter them. They can also lose sight of the bigger picture and of the client's over-arching interest.  

feel sorry

Don't feel sorry only after your buyer has bolted. Photo:

In diffusing conflicts, your business lawyer should take a proactive approach, consider all options on the table (not just legal), leverage off rapport with people and keeping a firm eye on the finish line and get the sale across. If this is not done properly, or if nothing is done at all, then it'd only take one mistake to scuttle the sale. For instance, the landlord can decline the lease application, the buyer can pull out of the sale and/or the franchisor can decline the buyer's application. I know of another solicitor who was so fixated with his own ego that he threatened the client. The client had given instructions contrary to legal advice provided by the solicitor. The solicitor then threatened to drop the case if the client refuses to heed his advice. Clients have the right to make a decision that they feel is in their own interest.  

The Business Broker & Advisors As a seller, the interest of business brokers are closest aligned to yours, that is to sell your business and help you to exit. Business lawyers are generally not paid on commission so they have no vested interest whether the sale gets over the line or not. I can be sure that if these lawyers are paid on commission, they'd be a lot more proactive. As an exit strategist, I want to work with a good team to help the client. One of most important team member is the client's solicitor. Hence, I will suggest a business lawyer I know that can get the job done and have this person hired on the team. The client is not obliged to take up any suggestion, but I believe that by not explaining the risks of hiring a bad lawyer, it is a huge dis-service to the client. Selling a business is a team effort. Your business exit strategist, accountant, lawyer, banker (and other advisors) are integral members of your team. You can't afford to have internal conflict or rapport issues within your own team. Your advisors might have weekends meetings, after-hours discussions, access to one another's private contacts, and offer each other faster response times and special privileges. A privilege I often get is preferential access to the business lawyers and solicitors that I work with, so that I can keep them accountable in the interest of our common client. One final tip. If your lawyer is not up to the task, do not feel obliged to retain them in your service. Don't wait to change lawyers only after the buyer is long gone.  

Josh Foo contributed to this post.