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NEVER Purchase a Business without Advice of Expert Corporate Law Attorneys

Friday, 23 September 2016 / Published in Corporate & Tax

NEVER Purchase a Business without Advice of Expert Corporate Law Attorneys

Purchase a Business.

This article will help you to better understand the ins and outs of when you decide to Purchase a Business.

Recently, a client arrived at our office:

  • On his last leg.
  • In Debt.
  • Humiliated.
  • Scared
  • Facing Divorce over a business mistake.

Why?

Two years ago, he put his family’s savings into an LLC formed on one of those online ‘form your company and save money’ websites, and bought a retail company to fulfill the husband’s life long dreams of self-employment through owning a business – all without ever contacting a Corporate Law Attorney for guidance or advice.

What could go wrong?

This man contacted a business broker and a few months later purchased a retail store selling the latest fad in sugary foods.

Almost immediately, the business was in trouble. The first month’s revenue was less than half of what he expected based on the financials the Seller provided during “due diligence” review.  

He never asked a Corporate Law Attorney to examine the business and financial documents provided by the Seller or even review the purchase agreement.

What Happened?

As the hole got deeper the new business owner struggled to maintain the business and realized the mathematical fact that the business was insolvent – INSOLVENT!  

Just two years earlier this man was a well-respected professional with significant savings seeking an acquisition opportunity. He invested Several HUNDRED THOUSAND dollars to buy a Company without any outside advice.

As they shut down the business and negotiated a Lease Termination, the Client learned that the Sellers provided the Landlord with monthly revenue numbers that were consistently half of the revenue numbers provided to the Client during negotiations.  Suspecting fraud, he contacted General Counsel, P.C. (experts in Corporate Law) for advice.  It took a lawsuit and over a year of negotiations to get a reasonable settlement for our Client.

What Could have been?

The cornerstone of an experienced Corporate Law Attorney’s due diligence review as a buy-side advisor is to examine and scrutinize the financial statements for accuracy.  In addition, we interview the accountant to ensure there are no procedural or accounting irregularities.  

The central issue in the acquisition of a business is the Allocation of Risk between the buyer and seller. Our transaction documents are drafted to identify any liabilities and address them in advance.  As you can imagine, our Client presented us with a deal document that could have been written on the back of a napkin – stains and all.

The financials are the scoreboard of any business and the entire basis for determining the value; there are simple multipliers setting the value based on the Financials.  If the reported numbers are not correct the entire transaction should be abandoned.  In this case, due to an “accounting problem,” the Seller could not provide up to date financials before closing – to a good Business Attorney, this is a major RED FLAG.  If this Client had contacted General Counsel, P.C. just 15 minutes before closing the transaction, this disaster would have been avoided.

In just 30 minutes we diagnosed what happened to this family – to the trained Business Attorney it was obvious – it would have saved him over a year of anxiety and several additional thousands if he had sought guidance.

If you are considering buying a business, contact an experienced business attorney at General Counsel, P.C.  Richard Trimber can be reached at:  rtrimber@gcpc.com or (703) 556-0411.

Decide what you want your company’s future to be and call Richard Trimber at General Counsel, P.C. for a consultation and fitness checkup on your company’s operations, stress points, structure, HR Policies and Procedures (strategic HR with training plans) and team needs so you can grow a great business – a living company that can survive and thrive in the future. 

General Counsel P.C. has the expertise, skill and–the real key–unique experience of running companies as C Level Executives that makes a difference when advising our clients on: (i) structuring operations for efficiency and legal protection (which means more value); (ii) administration (not just overhead but value added elements); and (iii) Sales/Marketing (proper incentive based compensation causing the behavior that drives results!).  

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