A question often asked by entrepreneurs is: How much does it cost in legal expenses to complete the acquisition of a company?” A better question would be: "How do I get the services of a top attorney without emptying my pocketbook?" I'll answer both questions here.
In the many transactions that I’ve participated in during the last several years, legal expenses have run $4,000 on the low side to $35,000 on the high side, depending upon the size and complexity of the transaction. Most of this cost is a function of the time spent by the attorney to understand the salient deal points of the transaction, draft and/or review the Letter of Intent (LOI) and Purchase Agreement and participate in the negotiation process (much of which is with the attorney on the other side).
The process tends to cost more than it should because the attorneys often have an agenda of their own which is twofold; 1) create fear in their client over things that can go wrong so that their client feels they need the protection of their attorney, and 2) to optimize billable hours for which they are compensated. They often over protect their client with long and numerous complex clauses to justify these fees. This process not only adds to the cost, but can even kill the deal. This creates a second problem for you since you may have a dead deal and you have to pay your attorney anyway.
Every deal has risk for both sides. An objective to eliminate these risks is unrealistic. The object should be to mitigate risk to an acceptable level that allows the deal to get done.
The smart entrepreneur seeks to minimize their legal cost and the deal killer clauses that come with it. Here’s how.
Firstly, by drafting the initial version of these documents themselves, the entrepreneur can think through the salient points that matter to them. Our members do this by using one of our templates. This minimizes the amount of time required of the attorney.
Then by negotiation, it is many times possible to get your attorney to accept (in lieu of his normal hourly rate) cash reimbursement of his hard costs (usually under $500) and a 2% to 5% share of equity in the deal.
In the alternative, you can agree to his hourly fee, even add a premium to it, if the attorney will agree to defer payment until the deal closes allowing you to pay the attorney’s bill from the funding of the purchase.
Both of these methods have an added benefit of keeping the attorney focused on closing the deal with a minimum of time invested on their part. Your agenda has become the attorney’s agenda and that will ultimate be better for you.
Most experienced entrepreneurs continually look for ways to minimize or eliminate cash outlays or seek to defer the payments until they can be paid out of the revenue generated by the transaction for which the expenditure was required.
This is just one example of the strategies and methods for starting, buying or expanding your own business that I teach in my online Bizar Financing course. Check out my free online video Getting Rich Your Way and see how other entrepreneurs are using my methods and strategies to start, buy or expand their own successful businesses using little or no cash of their own.
Leave a Comment