On my way to the courthouse the other day I received a frantic call from a client. I heard the excitement in his voice. I had to tell him to calm down and explain it to me slowly. After gaining his composure, my client, let’s call him Jerry - you know, to protect the innocent and all that - began telling me of the sweetest deal I would ever hear in my lifetime. Apparently, a friend of his had suddenly decided to sell his business to Jerry for a steal.
The stipulation, of course, was that Jerry had to sign all of the papers NOW or the deal would evaporate. He explained this was an opportunity of a lifetime and he needed me to move fast. He assured me it wouldn’t be a lot of work because I only needed to rubber stamp the contract for sale. The parties had already agreed to all of the important terms.
I allowed him to tell me all of the positive sides of the deal before I said anything. When I felt he was convinced he’d sufficiently sold me on the idea, I gave him my legal advice. You guessed it, my counsel went something like, “Jerry, I wouldn’t advise you to sign anything at this time and I certainly won’t rubber stamp the purchase of a business. There’s always issues and a fair amount of due diligence should be performed before making a sizable investment – even if it is the ‘deal’ of the century. If the seller won’t allow you a reasonable period of time to check things out, then don’t buy the business … at any price.”
I could hear the long, sustained sigh of a man who’d already placed his name on the front door and put his children through college with his new venture. With every word I said, the telephone grew more silent. If I were a mind-reader, I would probably hear him saying, “Why did I ever call this guy?”
At times like this, it’s hard to be the killjoy. But I was on my way to the courthouse, the place where deals like this always end, and I knew that Jerry was sad now, but he’d be a lot sadder then. The moral of the story is obvious: begin with the end in mind. While it’s virtually impossible to assure your deal won’t end up at the courthouse, here are a few things you must do on the front end to prevent it from happening. You’d be shocked (well, maybe not) how much of that gets left out due to carelessness or euphoria. Before you do the deal:
(1) Do your homework – check out the seller, the books (thoroughly), the assets and liabilities, public records, everything - before signing anything. Nowadays, even a novice can find out valuable information about almost anyone or anything, or purchase it cheaply;
(2) Don’t be rushed – most of the time the deadline is false. If you really must make a decision without due diligence, don’t do the deal; another one will come;
(3) Get professional help – consult your lawyer and your accountant. This is another popular group at the courthouse (those who fail to obtain professional help – more on that in a future post);
(4) Do your deal in writing – execute a signed agreement with all terms clearly spelled out. Don’t use “legalese” or allow your lawyer to. Make sure you understand what the terms really mean. I saw the play “Jersey Boys” and was touched by how Frankie Valli and Bob Gaudio always did business on a handshake. Sad to say, there aren’t many Frankies and Bobs around anymore. Put everything in clear, simple writing.
(5) Consider alternative dispute resolution – you can mandate (in your written agreement) that any legal issues with your deal must be resolved outside of court by an arbitrator. This can be a little more expensive up front than filing a lawsuit, but cheaper, shorter and less stressful in the long run.
I will give Jerry this much credit: he called me before he did the deal. And while he didn’t make the investment, he also didn’t make a trip to the courthouse. He left that honor to the lucky buyer.
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