Small business owners generally do not have a Board of Directors or other peer group to turn to for advice on the many issues which come up in the course of running a business. After years of association, many business owners turn to their attorney or accountant for expert advice on a wide range of issues. While these individuals may be experts in some areas, they may not be an expert in the advice the owner is looking for. Here are some things to keep in mind when getting advice from your attorney or accountant.
Like physicians, attorneys tend to specialize in specific areas of practice. An attorney may be an expert on personal injury claims, trusts and estates, patent and trademarks, or family law. A business owner should seek out an attorney who specializes in business law as their primary attorney. In fact, there may be instances when a business owner may need to consult other attorneys as well. For example, if the business is involved in a lawsuit, the business owner should engage an attorney with experience in business litigation. Labor disputes require an attorney versed in labor laws while defending a patent or trademark requires a qualified patent attorney. The law is too complex for one attorney to be an expert in all areas.
A Transaction Attorney
Selling a small business requires an attorney who is not only familiar with business transactions, but one who has the ability to negotiate successfully. This may or may not be describe the attorney the business already uses. Before engaging the attorney in the sales process, a business owner should evaluate the following:
- Is the attorney a good negotiator?
- Can he advocate for the owner in such a manner that he can secure the most favorable terms without killing the deal?
- Will your attorney respond promptly to the buyer’s counsel so the deal can move forward in an efficient manner?
- Can the attorney complete the deal without excessive “lawyering”, keeping the legal fees in check?
Choosing an Accountant
Unlike attorneys, accountants are not as specialized. Most prepare business financial statements and tax returns. However, some have specific industry specializations and business owners may benefit by using one that specializes in their industry. An accountant with expertise in the particular industry should be able to give the business owner better guidance on how the business financials compare to their industry and point out areas for improvement.
Not all accountants are able to do business valuations. It is not unusual for us to meet with business owners who have received a business valuation from their accountant that is unrealistically high. You need to be certain that the valuation is based on accepted methods for valuing a business. Make certain your accountant has credentials and training that qualify him to do a business valuation before taking their advice on how much to ask for a business.
Selling the Business
Another area in which a business owner should be cautious in taking the attorney’s or accountant’s advice is when they are deciding whether or not to sell the business. In most business sales, the decision is based on lifestyle issues – retirement, burnout, health, etc. – rather than financial considerations. The owner is the one to make that decision. I have also seen situations where an owner was at retirement age and the business was not doing well, yet the accountant continued to advise against selling, apparently because the accountant did not want to lose a client.
Beware of Confident, but Uninformed, Advisors
Getting general business advice from an attorney or accountant may not be wise if the advisor has no special expertise on which to base that advice. Just because an attorney or accountant works with business owners doesn’t make them an expert in how to run a business. At some time in our lives we have all dealt with people who are very confident in the advice they give – even when it isn’t necessarily good advice. I haven’t seen any study that shows a correlation between the confidence of the advisor and the quality of the advice.
Every business owner needs trusted advisors to give them advice, and you should build a good team of qualified people to turn to. Just be careful that you are getting advice that is within the advisor’s area of expertise.