Conflicts of Interest When Buying a Business: Is Your Deal Team Protecting You?
When you're buying a business, everyone tells you to assemble a team of professionals.
You'll probably need a lawyer, an accountant, a lender, and possibly a business broker or due diligence specialist.
But here's a question that doesn't get asked nearly enough:
What if some of the people advising you have financial incentives that don't align with your best interests?
I've spent years helping people buy, sell, finance, and manage small businesses, and I believe understanding potential conflicts of interest is an important part of protecting yourself during an acquisition.
The problem isn't necessarily that someone is dishonest.
It's that the way they're compensated, the relationships they maintain, or the referrals they depend on may influence the advice they give you.
And if you don't know about those relationships, you may make decisions based on advice that isn't as independent as you think.
Let's look at how conflicts of interest can arise when buying a business, which professionals you should examine carefully, and how to build an acquisition team that is genuinely working for you.
Why Conflicts of Interest Matter in Business Acquisitions
I recently had a conversation with another professional who works with small business buyers and previously worked in private equity.
He described how competitive the private equity world can be.
Even when professionals have friendly conversations, they understand that other participants may be competing for the same deals.
That made us reflect on the online world of small business acquisitions.
There are plenty of friendly conversations, helpful videos, podcasts, and people offering guidance.
And much of that information can be valuable.
But behind those relationships, there can also be referral arrangements, commissions, and financial incentives that aren't immediately obvious to a buyer.
That's what concerns me.
A conflict of interest doesn't automatically mean someone will act improperly.
It means there's another interest that could influence their judgment.
And as a business buyer, you need to understand that interest before deciding how much weight to give their advice.
Business Brokers: Understanding Who They Represent
Let's start with one of the most obvious examples.
Business brokers are commonly compensated by sellers through commissions paid when a transaction closes.
That arrangement is generally understood.
The broker wants the business sold.
And in many commission structures, a higher selling price can result in a higher commission.
So if you ask the seller's broker whether you should buy a particular business, you should understand that their perspective may be influenced by their role in the transaction.
That doesn't mean they're necessarily giving you false information.
But it does mean their incentives may differ from yours.
The Problem With Undisclosed Incentives
The bigger concern arises when similar incentives exist among people you believe are working independently for you.
Suppose the business broker recommends a particular lawyer.
You might assume the recommendation is based entirely on that lawyer's expertise.
But what if the lawyer receives 20 referrals every year from the same broker?
Would that lawyer feel comfortable recommending that you walk away from a transaction if doing so might jeopardize future referrals?
Some professionals would have no difficulty doing exactly that.
Others might feel pressure, consciously or unconsciously, to keep the referral source happy.
That's the kind of conflict I want buyers to recognize.
Can a Business Broker's Recommended Lawyer Be Independent?
Lawyers have professional obligations to their clients, including duties of loyalty, confidentiality, and independent judgment.
But financial and professional relationships can still create concerns that deserve examination.
Imagine a broker tells you:
"I know a lawyer who's great at getting these deals done quickly."
That might sound attractive.
Nobody wants a transaction to become unnecessarily complicated or expensive.
But I would want to know why the broker is recommending that particular lawyer.
Is the lawyer genuinely experienced in protecting business buyers?
Or are they known for getting transactions completed without asking difficult questions?
Why a Deal-Friendly Lawyer Isn't Always the Right Lawyer
When I'm buying a business, I don't want a lawyer whose primary objective is to close the transaction.
I want a lawyer who will identify legal risks, explain them clearly, and help me negotiate appropriate protections.
Sometimes that means delaying a transaction.
Sometimes it means changing the purchase agreement.
And occasionally, it means recommending that the buyer shouldn't proceed.
A lawyer who never raises concerns might make the process feel easier.
But that doesn't necessarily mean the buyer is being protected.
Accountants and Due Diligence Firms Can Face Similar Conflicts
The same concerns apply to accountants, quality-of-earnings providers, and other due diligence professionals.
These people are supposed to help you understand what you're buying.
They may investigate financial statements, review operating expenses, identify unusual transactions, and evaluate the sustainability of reported earnings.
But what if they're receiving a steady stream of clients from the broker involved in your transaction?
Or what if they're paying referral fees to someone who recommends their services?
Those relationships can create competing incentives.
Why Referral Dependence Matters
There's a marketing concept called center of influence marketing.
A professional develops relationships with people who regularly refer clients.
That can be a legitimate way to grow a business.
But imagine an accountant who receives a significant portion of their acquisition work from one particular broker.
If the accountant repeatedly identifies serious problems that prevent transactions from closing, the broker might become less enthusiastic about referring future clients.
That doesn't prove the accountant will compromise their work.
But it creates a potential pressure that the buyer should understand.
You want your due diligence professionals to be rewarded for finding the truth, not for helping a deal reach closing.
Hidden Referral Fees in Business Acquisition Financing
Business loan brokers and financing intermediaries can also have compensation arrangements that buyers don't fully understand.
Some receive fees from borrowers.
Others may receive compensation from lenders.
Some arrangements may involve additional referral payments or incentives.
The important question is whether those incentives could affect the financing options presented to you.
Is a Free Loan Broker Really Free?
I've often expressed frustration with mortgage brokerage advertising that describes the service as free.
The broker may not charge the borrower directly.
But that doesn't necessarily mean nobody is paying them.
They may receive compensation from a lender.
And if different lenders pay different amounts, I'd want to understand whether that affects the broker's recommendations.
Of course, compensation and disclosure requirements vary by jurisdiction, and some brokers are subject to specific rules.
My point is that buyers should understand how their financing intermediaries are compensated.
Ask How the Broker Gets Paid
Before relying on a financing recommendation, I would ask:
Who pays you for arranging this financing?
Do different lenders pay different commissions?
Are you receiving any other referral or success fees?
Which lenders or financing products have you considered?
Are there financing options outside your network that I should investigate?
You don't necessarily need to avoid every professional who receives a commission.
But you should understand their incentives.
Referral Fees vs. Success Fees: Why the Difference Matters
Not all compensation arrangements create the same incentives.
A referral fee may compensate someone for introducing a potential client.
A success fee generally depends on a particular outcome, such as completing a transaction.
Both can create conflicts, but they may influence behavior differently.
How Success Fees Can Encourage the Wrong Outcome
Suppose you're hiring an accountant to investigate a business.
You tell them:
"I'll pay you only if I end up buying the company."
Think about what you've just done.
You've made the accountant's compensation dependent on your decision to complete the acquisition.
If the accountant discovers serious problems, recommending that you walk away could mean they don't get paid.
That's exactly the kind of incentive I want buyers to avoid.
Why I Prefer Fee-for-Service Advisors
When someone is helping me evaluate a business, I generally prefer paying them for the work they perform.
That way, their compensation doesn't depend on whether I purchase the company.
The same principle applies to the Buyer Insight Analysis services my team and I provide.
People hire us to review an opportunity, examine the available information, identify risks, and help determine a reasonable initial offer.
They shouldn't want my compensation tied to whether they buy the business.
They should want me to tell them what I actually think.
A Real Business Acquisition Example: The Missing Seller Note Protection
Let me share an example that illustrates why independent professional advice matters.
I once worked with someone who asked for my opinion about a business acquisition.
After reviewing the opportunity, I told him I didn't think he should proceed.
He bought the business anyway.
Later, he contacted me because the business wasn't performing as expected.
I asked whether he'd structured the transaction with the protections I'd previously discussed, including seller financing.
He said he had.
But when I reviewed the documents, I discovered something important was missing.
The seller note didn't include an offset clause.
What Is an Offset Clause in Seller Financing?
A properly drafted offset provision may allow a buyer, under specified circumstances, to reduce amounts owed on a seller note to account for certain claims against the seller.
For example, if the seller materially misrepresented something about the business, an appropriately negotiated provision might give the buyer a contractual remedy involving unpaid note amounts.
The exact protection depends on the agreement and applicable law.
Without that provision, the buyer may have fewer practical options for recovering losses through the seller note.
What Went Wrong?
In this particular transaction, the buyer later encountered problems involving fraud.
But because the seller note lacked the expected offset protection, his ability to use the unpaid note to address those losses was limited.
I asked how he'd found his lawyer.
The lawyer had been recommended by the business broker.
Now, I can't tell you that the referral relationship caused the missing clause.
But it raises an important question.
Was the lawyer carefully representing the buyer's interests, or was the focus primarily on getting the transaction completed?
This is why I want buyers to examine the relationships among the professionals involved in their deals.
Fiduciary Duties vs. Financial Incentives
Professionals such as lawyers have duties to their clients.
Accountants and other advisors may also have professional obligations, although the precise duties depend on their role, engagement, and jurisdiction.
Those obligations matter.
But a professional duty doesn't mean you should stop asking questions.
You still need to understand who the advisor represents, how they're compensated, and whether any outside relationships could influence their work.
Why Disclosure Is So Important
A disclosed conflict is easier to evaluate than a hidden one.
For example, if you know the seller's broker receives a commission when the business sells, you can consider that incentive when listening to their advice.
But if your accountant is receiving undisclosed compensation from someone else involved in the transaction, you may not realize that their independence could be compromised.
That's why I encourage buyers to ask for clear explanations of compensation arrangements and referral relationships.
Transparency doesn't automatically eliminate a conflict.
But it gives you the information needed to decide whether the arrangement is acceptable.
Seven Ways to Protect Yourself From Conflicted Business Acquisition Advisors
Here are the practical steps I recommend when assembling your acquisition team.
1. Hire Your Own Professionals
Don't automatically accept every recommendation from the seller or business broker.
You can certainly interview referred professionals.
Some may be excellent.
But you should also consider independently sourced lawyers, accountants, and other advisors.
The important thing is choosing professionals who understand their responsibilities to you.
2. Ask About Referral Fees and Commissions
Ask every advisor whether they receive compensation from anyone else connected with the transaction.
You want to know whether the broker, seller, lender, or another service provider is paying them for referrals or other activities.
A straightforward professional should be willing to explain how they're compensated.
3. Ask About Existing Business Relationships
Even when no referral fee exists, repeated business relationships can create incentives.
Ask whether the professional regularly works with the seller, broker, or lender.
You may discover that the same group of people completes transactions together frequently.
That isn't automatically a problem.
But it's information worth knowing.
4. Prefer Fee-for-Service Arrangements for Independent Advice
Where practical and appropriate, compensate due diligence professionals for their work rather than making their fees dependent on completing the acquisition.
You want them motivated to investigate thoroughly and report concerns.
You don't want them financially dependent on a successful closing.
5. Get Important Disclosures in Writing
I recommend requesting written explanations of referral relationships and compensation arrangements.
An email can be a useful starting point.
You might ask:
"Do you receive any referral fees, commissions, or other compensation from anyone involved in this transaction?"
You can also ask whether the advisor has any existing relationships that could affect their independence.
Written disclosures provide a clearer record than an informal conversation.
6. Get a Second Opinion on Material Issues
If you're making a major financial commitment, the cost of obtaining an independent second opinion may be worthwhile.
Imagine buying a business for $1 million and personally guaranteeing an $800,000 acquisition loan.
Would spending a few thousand dollars to have another qualified lawyer review the purchase documents be unreasonable?
I don't think so.
That additional review might identify a missing protection, an unexpected liability, or a contractual issue you hadn't considered.
You can also use AI tools to help organize questions and flag provisions for further review, but AI isn't a substitute for qualified legal or financial advice.
7. Understand What Happens if You Walk Away
This is one of my favorite questions to ask an advisor:
What happens to your compensation if I decide not to proceed with the deal?
The answer can reveal a great deal about the advisor's incentives.
If someone only gets paid when the transaction closes, you should consider how that might affect their recommendations.
Don't Get Trapped in Someone Else's Acquisition Process
There's another concept I want business buyers to understand.
I sometimes refer to it as getting caught in the program.
Imagine a seller and broker have an established process for moving buyers through transactions.
They introduce the business.
They provide information.
They confirm the buyer has sufficient funds.
Then they recommend a loan broker, an accountant, and a lawyer.
Those professionals complete their respective tasks.
And eventually, everyone works toward a closing date.
From the outside, the process might seem efficient.
But there's a potential problem.
You may have allowed the seller's team to design and control your entire acquisition process.
Why Buyers Need Their Own Plan
If you're constantly asking the seller's broker what to do next, you may become dependent on people whose primary objective is completing the sale.
That's not where I want you to be.
I want you to understand the acquisition process well enough to manage it yourself.
You should decide which professionals to hire, what investigations are required, which risks need further attention, and whether the transaction still makes sense.
The seller has their objectives.
The broker has their objectives.
You need to have yours.
How to Evaluate a Business Acquisition Advisor's Independence
When interviewing a lawyer, accountant, lender, or due diligence specialist, I recommend asking direct questions about their role and incentives.
Here's a practical checklist you can use.
| Question | Why it matters |
|---|---|
| Who are you representing in this transaction? | Clarifies whose interests the advisor is obligated to protect |
| Who is paying your fees? | Identifies potential compensation conflicts |
| Do you receive referral fees or commissions? | Reveals outside financial incentives |
| Have you worked with this seller or broker before? | Identifies existing business relationships |
| Are any fees contingent on closing? | Shows whether compensation depends on completing the deal |
| What happens if you recommend walking away? | Tests whether the advisor can give independent negative advice |
| Can you disclose relevant relationships in writing? | Creates a record of important disclosures |
I would be concerned if someone avoided answering reasonable questions about their compensation or relationships.
You don't need to assume they're dishonest.
But you should be comfortable with the answers before entrusting them with a major financial decision.
Professional Codes of Ethics Can Provide Additional Guidance
Many professional organizations have codes of ethics addressing independence, conflicts of interest, and disclosure.
For example, the International Business Brokers Association has a professional code of ethics.
Lawyers and accountants may also be subject to professional rules established by their licensing bodies.
If you're concerned about a particular arrangement, review the applicable professional standards.
And if necessary, ask an independent professional to explain what obligations apply.
The exact requirements vary by profession and jurisdiction.
The Most Important Person on Your Acquisition Team Is You
When you're buying a business, you need to understand that you're responsible for coordinating the process.
Your lawyer may understand the legal documents.
Your accountant may understand the financial statements.
Your lender may understand the financing requirements.
But none of those professionals is responsible for making every business decision on your behalf.
That's your job.
As I emphasized in the discussion:
“You need to be the person that is in charge of the team and you need to make sure that everybody on your team is actually working for you and only you.” —David C. Barnett
I want buyers to think of themselves as the quarterback of the acquisition team.
You don't need to perform every specialized task.
But you do need to understand the purpose of each task, the advice you're receiving, and the incentives influencing the people providing it.
Final Thoughts: Know Who Benefits From Your Business Acquisition
Buying a business involves risks that aren't always visible in the financial statements.
Some come from the business itself.
Others come from the way the transaction is structured.
And some may come from the relationships and incentives of the people advising you.
That's why I encourage buyers to investigate their advisors with the same seriousness they bring to investigating the business.
Ask who represents whom.
Understand how everyone gets paid.
Request disclosure of referral relationships.
Choose professionals who can give you independent advice.
And don't make your advisors' compensation dependent on closing the transaction unless you fully understand the consequences.
A successful business acquisition isn't simply a deal that closes. It's a transaction you understand, can afford, and have structured to manage the risks you're taking.
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