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Doing deals can be expensive.  A lot of entrepreneurs want to save money by not hiring an advisor or they don’t know when they should make the investment on an advisor.  It’s important to understand the roles of the broker and other advisors, especially legal counsel, and to know when to bring in a professional.  Here are some milestones in a deal, and how to know when to hire a business advisor.

When Doing Due Diligence

When a buyer shows interest in a business for sale and gets an offer accepted, he or she will get a chance to “look under the hood.”  

It’s time for the buyer to do their due diligence; to confirm that the business performs as the broker and seller have represented.  It’s important to understand each stakeholder’s positioning when doing a deal. Because the business broker normally represents the seller, he or she can’t and shouldn’t be giving a buyer a list of things to look for in the business.  

This may be a time to hire a business advisor.  

Accountants can confirm that the financials are valid, and business attorneys can validate that the seller has complete and legal ownership of the business.  Advisors like these can also look for other issues that could cause a problem after the sale. Another business broker can also provide assistance in due diligence as well, as long as he or she is on the other side of the deal.

When Starting a Business or Partnership

When people start a business together, it’s important to have valid articles of incorporation and operating agreements.  Start the partnership with a clear plan of how it could be dissolved. Proactive planning and documentation is the only way to avoid protracted drama when it’s time to move on, as all great things must come to an end.

In these agreements the details are important, so it’s worth investing in advisors as opposed to choosing the discounted online, templated options.  Owners who take this approach may save money on the front end, but often end up paying more when vague or ill defined documents fail to protect them on the back end.

Before Signing an Agreement

Successful owners get purchase agreement contracts for the acquisition of their businesses.  

But unlike a lot of real estate contracts, purchase agreements are often bespoke to the deal at hand.  Every business is different, and every purchase agreement can have caveats and contingencies that can have significant effects on when and if an owner receives full consideration for the business, as well as his or her future involvement in the business.  From the details of the transition periods to a family name that may or may not come with the transaction, the specifics of the purchase agreement are the instructions for how the deal will transpire and how success is defined when the deal is done. Other agreements in addition to purchase agreements may include items such as franchise agreements, vendor agreements, partnership agreements, and more…

Contract review and negotiation is an important time to hire an advisor. 

Remember that a business broker can share experiences that they’ve learned from previous deals involving attorney advice, but only an attorney can give legal advice when it comes to contracts.

When Money Is Involved

Just about any time that a significant amount of money is involved in a transaction, it’s probably worth hiring in an advisor.  

It may sound obvious, but if it says the money is non-refundable, for example, it’s quicker, easier, and cheaper to have it reviewed and potentially negotiated by an attorney than to try to fight to get the money back later.   Major issues like refundability are not always in bold or “above the fold,” but attorneys are trained to look for the important details like these.

When Making It Official

Nobody wants to waste resources by hiring an advisor, investing money and time, and ultimately not completing a transaction.  To mitigate this possibility there are less official documents and communications that can “test the waters” before the professionals are brought in.  It’s not a bad idea to float an offer verbally or by a simple email to make sure that a buyer and seller are in the same ballpark on price and terms, but more formal communications such as term sheets, letters/indications of intent, and ultimately purchase agreements show commitment.  

Advisors including business brokers can help in underscoring the validity of an offer by putting it on paper and delivering it in an official manner.  

The same offer that may have been dismissed if shared in a text could be accepted if it’s drafted and presented properly by an advisor…

In summary, despite the cost involved, it’s wise to hire an advisor. There are many milestones in a deal when business advisors are vital to success.  Such milestones may include after a buyer and seller have reached a meeting of the minds,  when money is about to be spent, or when new partnerships or agreements are being formed. Furthermore, there is a spectrum of “officialness” in documentation as communications move from an idea to an official transaction.  From term sheets to purchase agreements, business advisors can add value in preparing, reviewing, and presenting official documents. When hiring an advisor, instead of focusing on how much you will have to pay for quality advice, consider how much it may cost when making an uninformed decision.

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Neal Isaacs

Neal is a former shark diver turned Intermediary. He owns VR Business Brokers of the Triangle, the local representation of the International VR Business Brokers | Mergers & Acquisitions. His focus is seller representation of privately held businesses with annual sales of more than $1M in the Triangle market.

Neal’s strengths include matching buyers and sellers, pricing businesses, and negotiating deals.

He is an MBA, CBI, ABI and serves on the boards of the Carolina Virginia Business Brokers Association (CVBBA) and the Better Business Bureau of Eastern NC. He’s lived in Garner for 15+ years and is an active member of the Garner Chamber of Commerce. He enjoys cycling and spending time with his wife Vivian.
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