A Prescription for Effective Use of Our Legal Services in Business Transactions by Adam D. Plunk

Introduction

Clients have asked Andrews Barth & Harrison on a number of occasions why legal bills are sometimes higher than anticipated during the negotiating and closing of the purchase or sale of a business.  The elements of the answer are not always the same, but the one element that is most common is a lack of preemptive planning for the transaction.  Many times clients will begin the process of buying or selling a business without consulting their attorney and in some cases even sign letters of intent or purchase agreements.  Usually the client realizes they need an attorney about the time they sign the earnest money check or start providing due diligence items.  Many clients believe that by waiting to engage counsel they have saved themselves a great deal of money; however, this is much too late in the process and it is likely that clients will have committed themselves to more than required and therefore will have made the process much more difficult and more costly.  This article is intended to provide an overview of cost saving steps that can be taken to make the purchase or sale of a business flow more smoothly and be more cost effective.

Forward Planning Process

There are certain items that will always be required in the purchasing or selling of a business.  Those items include corporate records, certificates of good standing for the entities, employer identification information, a purchase and sale agreement and other ancillary documents.  If the client and attorney discuss and plan the proper strategy for purchasing or selling a business prior to beginning the process of the purchase or sale of a business, the attorney can have an associate or paralegal, who bills at a much lower rate, prepare these documents and start organizing them in a database that can easily be sent to lenders, buyers or sellers, opposing counsel and accountants.  It is important that this type of information be easily available due to the number of parties who will be reviewing it.  In most cases the lender, lender's counsel and the lender's underwriter will all be reviewing the documents and will be dependent on the client or the attorney to provide this information to them.  If the documents are well organized and prepared in advance it is less likely that there will be a time of panic in the eleventh hour to produce this information.

When a client contacts our firm early in the process, we will likely be able to produce the closing documents.  Being the producer of the documents gives the client a distinct advantage throughout the process.  First, we will be able to use forms with which we are familiar and be able to design them specifically for your transaction.  Second, the client and our firm will have more control over the information that will be required for the closing.  If you are the seller, you can easily limit the number of schedules or disclosures you will have to make and therefore save yourself time and money.  Third, a client that uses our firm's documents will have much more time to review and digest what is going to be required throughout the transaction and not be blindsided with arbitrary requirements that are not needed.  Fourth, when a client uses our documents the client saves hundreds if not thousands of dollars in the negotiation process. The client will have already reviewed the documents thoroughly prior to the opposing side's review, and we will know the areas that are most important to you the client and be able to make quick work of the negotiation, which saves you time and money.  Fifth, by allowing our firm to prepare the documents for closing there is much less of a risk of oversight on our firm or the client's part.  In some cases attorneys draft documents or provisions of documents that are legal, but not always the most efficient or effective for the client's business.  When the client and the attorney review and prepare the documents early in the process both sides can be comfortable with what is going to transpire and the client will be well informed and protected and the parties should be able to limit oversights in the documents.

Cost Savings

Further, when our firm prepares your documents for the closing, we may be able to save you a great deal of money by using our associates or legal assistants to draft the initial versions of the documents and then have our senior counsel review them; however, if you require the documents to be done in a rush or if they are prepared by the opposing counsel, a senior attorney will likely have to prepare and/or review the documents much more thoroughly and at a less effective rate.  A client can also spread the legal fees over an extended time by preparing early for a transaction and therefore not be shocked with one or two months of large legal bills.

In conclusion, as a prescription for effective use of our legal services in your business transaction, it is best to plan ahead, involve your attorney early in the process, let your attorney prepare the closing documents, and be well prepared when the time comes to purchase or sell a business.