by Mark R. Sullivan, Esq.
I last wrote about an old Fram® Oil Filter television commercial—the one where the auto mechanic says at the end that he doesn’t care; you can pay him now (for a new oil filter) or pay him later (to replace the car’s engine). I promised to provide you with some examples of how this tagline plays out between small business owners and their business lawyers.
FYI: “Pay me later” is always lots more expensive than “pay me now.”
In the past, I represented the owner of a personal training business. She was successful and had a good clientele of steady, consistent training clients. She had other trainers working out of her rented facility who paid her a modest percentage of their training fee income. She sold supplements to her clients and the others who visited the gym. At the time, business was good.
After five years, she grew tired of the business and wanted out. She didn’t realize how draining it would be to have to work the three, simultaneous jobs of all entrepreneurs. She sought business, trained the clients and ran the business. It was more work than she ever anticipated.
She met with one of the other trainers whom she trusted and shared the idea of selling the business to him. He was interested and the two began to discuss the general terms upon which a deal could be made.
Neither consulted a lawyer at this stage of the process (Author’s note: This would be the “PAY ME NOW” moment), although both confessed thinking about and deciding against it. Instead, they discussed the price for the business. Although they had differing views of what the sale price should be, the owner assumed the pricing was close enough and trusted the buyer.
Unfortunately, the buyer didn’t have the funds on hand to purchase the business at the price she intended. This was not a problem to our two transaction partners. They agreed that he would begin to operate the business as if he owned it and then he would begin paying her the purchase price (still not agreed to) out of the operating profits of the business and give her the money to pay the rent during this “interim” arrangement. She would assist him in the transition of the business and its relationships with its customers, other trainers, suppliers, bank, credit card processor and landlord. He would take over her training clients and she would begin to enjoy life after owning a personal training business.
They decided to worry about all of the “details” later when they both had time and money to spend on lawyers. (The business lawyers in the audience are all shaking their heads about now.)
During the first few months, it never generated the money that both parties expected.
The buyer woke up to the realities of marketing and administrative demands that business ownership entails and he began to have second thoughts about buying the business. He also missed a rent payment and my client had to pay the landlord out of savings rather than operating profits since those were now for the account of the buyer. She is still obligated on the lease since the “details” weren’t addressed. Also, the buyer was not very good with training the clients and several of them left the facility altogether amid complaints about missed and tardy training appointments. He alienated the training supplement vendors, all of which had been great sellers for the business, and several pulled their products.
Finally, the buyer made a decision. He walked away from the deal, leaving my client in the lurch, and took his training clients along with invaluable knowledge of various financial matters about my client’s business to another gym. My client rushed back into the business to discover the mess and that there was a discrepancy in the supplement inventory. The buyer was selling inventory and “forgot” to pay for it when the invoices came due. On top of what already seems like a terrible situation, several items of exercise equipment were missing.
Finally, she came to see me and dumped this messy story on my conference room table (Author’s note: This is the “PAY ME LATER” part), asking for my help to pick up the pieces and put things back together again.
Have you ever wondered when to consult a lawyer? Pay attention to that thought and trust it. Don’t push it away. Pay a lawyer now, save a bundle later.
©2015 by Mark. R. Sullivan. All rights reserved.