A recent Bizar Financing member recently asked, "What advice can you offer in ways to get professional representation without the typical retainer fees up-front, instead paying all of the associated costs at the closing table?"
The vast majority of professionals are accustomed to payment based on their time, regardless of results. This includes attorneys, accountants, appraisers, inspectors, and consultants. Attorneys and accountants are particularly conservative and will generally ask for an upfront retainer to insure that their hourly billings will be paid. Professionals recognize that the risk to them for any project is not whether an idea or undertaking has merit, but rather that they are at the mercy of the entrepreneur (the project driver) including that person’s willingness and ability to execute and achieve the result.
A professional’s willingness to risk his time (and therefore fee income) is directly proportional to his belief that the entrepreneur (project driver) has the capacity to deliver and achieve the required result. Also, the longer the deferral of the fee income from the time the professional’s work must be performed, the less likely he is to work where his fee is dependent upon the outcome.
Attorney’s already have a model for absorbing fee risk. It’s called contingency. You pay the out-of-pocket costs of the litigation. The attorney pursues your case through filing the lawsuit, undertaking settlement discussions and trial if necessary. The attorney takes the risk that the case will result in a settlement or victory at trial for which his percentage will be bigger than if he pursued the same work on an hourly fee basis. The timeline for resolution could be short in the form of a quick settlement or it could be long and protracted proceeding through trial. The most important difference to the attorney between working for you on a contingency in putting your deal together or a contingency for the result of a lawsuit resides primarily in whom he puts his faith. In the lawsuit he has faith in his own ability to evaluate the facts in relation to applicable law, file the suit, negotiate a settlement and if necessary try the case to a successful result. In your project, he must put his faith in you (a person who is for the most part unknown to him) achieving a result in a field about which he may know little or nothing.
So understanding the issues, let’s take a look at how to overcome them.
First, we want to shorten as much as possible the timeline between when the attorney does the preponderance of the work and when he would expect to be paid. This is accomplished by dividing the work into two stages; 1) Pre-agreements and 2) Agreements and Closing.
We would explain to the attorney that the only thing we need from him in the pre-agreements stage is perhaps some phone or email time to answer a few questions regarding legalities or concerns over deal structure but that the time will be minimal and for him flexible so as not to interfere with his time normally allocated to immediate fee income.
This sharply limits the risk assumed by the attorney because many prospects will fall by the wayside without any involvement from the attorney. You are conserving the attorney’s time for when it counts, agreement drafting and help in closing.
Agreements and Closing Stage
When it is time to draft agreements you will do the following things to further reduce the time required from the attorney to prepare the required documents.
You will not require the attorney to attend any negotiation meetings with the seller.
Instead as a product of your negotiations with the seller, you will prepare a non-binding letter of intent using samples from our program as a model for the attorney to review before you send it to the seller.
You will then send the attorney’s modified letter of intent to the seller for review and submit it back to the attorney for any changes you have agreed to make during your discussions with the seller.
You will then send the attorney a copy of the actual letter that is signed by both you and the seller, so that he can then draft the agreements.
This all goes quickly and efficiently these days by using email to transmit attached documents in an easily modifiable electronic format.
If and only if you are an experienced business buyer:
You should ask the attorney if he will want you to “frame” the agreement for him. If he says no, that means he prefers to draft the agreements from scratch using his own forms and formats. If he says yes, you will need to go to our library of sample agreements, select the sample most closely resembling your transaction, substitute where necessary the names of the parties and modify the specific facts and terms as best you can before sending the modified documents on to him. This step should only be attempted by buyers who have been down this road before and who are familiar with the language of agreements. The attorney’s work and time commitment has been reduced to a review of your document and modifying it for final form and applicability.
If you are not an experienced business buyer:
You will expect that your attorney will draft the agreements from scratch using his own forms and formats and incorporating the salient provisions of the non-binding letter of intent.
You can expect that from the date the attorney begins in earnest drafting the agreements, through the date they are signed by the seller and the date of the closing approximately 60 days will pass. Since funds will be available at the closing to compensate the attorney for the cash portion of his fee and since the equity portion of his fee also becomes real with the closing, we have reduced the timeline from work to payment down to approximately 60 days. In a normal billing, the attorney does the work, sends out a bill within 30 days of doing the work which under ideal circumstances is paid by the client within 30 days of receiving the bill. Many large corporations and the government take 60 days or longer to pay a bill from anyone including their attorneys. So, you can remind the attorney, while his deferral is a worthy accommodation, it is not a great stretch for him.
With the timing of payment put in perspective, the only sustainable objection that an attorney or other professional can have is the risk of completion to a successful outcome. There are
essentially two ways of abating this objection. The one I use is my track record for closing deals. Attorneys usually are amenable to working with me because the chances are good the deal will close and the increased value of their compensation upon closing offsets the risk. Plus, I do a good job of activating their greed. This is done by reminding the attorney that he is very smart, has degrees from both college and law school, passed the bar exam, attends seminars and symposiums regularly to update his knowledge and skills, invests a fortune in books and technology to ply his profession yet he has no way to leverage himself, and while fee based work can provide him an excellent living, he is limited in his ability to create wealth. In the meantime guys with 8th grade educations can become entrepreneurs, start in their garage and become mega millionaires without half the attorney’s brains, education, or money invested in his ability to perform. Then I ask him; “Who owns the biggest home in your community, a lawyer or an entrepreneur?” I then remind him that he owes it to himself his family to cherry pick the best deals that come across his desk and participate in a major wealth creating opportunity; which I just happen to have here.
They get it that they will lose some and win some and if they chose wisely the wins will pay for the losses dozens of times over. The oil drilling metaphor applies here – “Wet wells pay for the dry ones.”
The second method is especially useful when you live in a smaller community with a limited number of qualified attorneys to choose from. Here you acknowledge the risk factor and offer to offset it by including the attorney not only in the deal at hand but in the subsequent deals you will also be generating. You actually make an agreement that if the current deal does not complete, he will be compensated in the next deal at double the rate of the deal at hand. Should the second deal also not complete he will continue in the third deal at triple the rate of the first deal. If he asks, you could even keep going saying that the rate maxes out at triple but you will keep using him, as long as he completes your predefined needs in a timely manner, until a deal completes or until he decides it is not in his interest to continue. At any point, you will compensate him what he should have earned in the first deal from the first completing subsequent deal even if he elects not to continue with you. You have the concept; use your imagination to make the attorney feel comfortable. If you use this method, be sure you are hiring an attorney who is eminently qualified to do his part for your mission.
Bottom line; sell yourself and sell your deal. With the rationale set forth above, some qualified attorney (and other professionals) will go the distance with you.