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Can you pass deal risk along to your
service providers?
I was contacted the other day by a
long-time friend in Florida who helps people buy businesses.
Why did he want to reach out to me?
To ask me a question: Do you have any
direct experience with attorneys and accountants working on business
acquisition files on a contingency basis?
I responded that I did not with the
exception of a new lawyer that I knew of who did a deal when he was fresh out
of college to try and build his practice.
You see, my friend is being flooded with
comments and expectations of business buyers who believe that it is
commonplace for CPAs and Lawyers to work on contingency.
What is contingency?
It means you only get paid when and if a
deal is successful.
So, for a CPA this means you only get paid
for due-diligence work if the buyer completes the deal and everything and
everybody else falls into place.
Like financing and if the due diligence doesn’t
actually reveal any problems.
The place you find this kind of payment
scheme quite often is with lawyers and personal injury.
Here’s the difference though: Lawyers can
assess a case and judge for themselves if they feel that the plaintiff will be
successful… and the defendant (insurance company) always has cash.
My friend asked a few people like me what
we were seeing because he was beginning to doubt himself.
There are SO MANY PEOPLE who believe
so strongly that if they just call THE RIGHT lawyer or CPA they can get them to
work and only be paid if the deal works out.
Why is the idea that CPAs and attorneys
will work on business acquisition deals on a contingency basis growing?
That’s an interesting question.
You see, the best qualified lawyers and
accountants know their time is valuable and they have a bunch of people waiting
to work with them.
Why would they work with a business buyer
and not be certain of getting paid?
Many deals are initiated that never work
out.
So why would they agree to only get paid if
the buyer makes everything work just right?
Why?
Can you think of a good reason?
Maybe for a higher fee?
Most good advisors are struggling to get
home by 5pm.
They don’t need more work and if there’s a
chance that they won’t get paid, it wouldn’t make sense to do it.
The reason this idea is floating around the
internet is because it is a little lie that helps to support a bigger lie.
If I tell you that you can buy a business
with no money by following a magical formula, a smart person will likely think
about the closing costs and due-diligence fees.
‘How do I pay the lawyer and accountant if
I have no money?’ the smart student will ask.
‘Don’t worry my little Padawan, I am a
Business Acquisition Jedi Master and I will show you how to get lawyers and
accountants to gamble their fees on your success.’
Bam. Problem solved. Now you really can buy a business with no
money.
Except you can’t.
And this is what I’m running into more and
more.
People who’ve invested $3,500, $5,000,
$7,500, $12,000, $25,000 and more into ‘programs’ designed to show even the
brokest of broke blokes how they can buy a big and successful business with no
money even if they have bad credit.
Don’t believe the hype.
You need a great lawyer who is experienced
in small business acquisition to help you with paperwork and legal due
diligence.
You need a great CPA who is experienced in
small business purchases to help you examine the numbers.
Neither of these team members will be free
or will risk their time on whether you can learn to properly wield your newly
minted business acquisition light saber.
Go talk to some businesspeople.
What was the consensus of my Florida friend
who surveyed people in the industry?
Not one of them said they had seen a
good lawyer or CPA do an acquisition deal on contingency.
So, is this impossible to pull off? Maybe
not IMPOSSIBLE, but you’d likely have to leverage existing personal or business
relationships to make it happen. Is your
brother a CPA or attorney?
Cheers
Dave
