5 Tips to Avoid Legal Problems

In the course of practicing law for over 35 years, I have found that there are some actions that can be taken to avoid potential legal problems. An argument can be made that these observations are nothing more than “common sense”, but as many prophets, sages, philosophers and otherwise intelligent people have observed: Common Sense is not so common.


There are five important things you can do to avoid legal problems or minimize legal action.  It is important to communicate clearly, choose your battles, be selective as to whom you receive advise from, following through and being kind.  Following these actions may help you avoid legal problems and keep you out of court.


The first of these tips is communication.  Communication is key and should have certain elements to it. Communication of expectations ought to be established and time frames should be determined.  Clearly state when projects need to be accomplished.  It is understood that from time to time the scope of work may change, which could affect the timeline that was previously set forth.  Parties involved want to know what the change is and why.  As soon as an issue is recognized, that is relevant to your time frame, address it.  Notify the other party of the issue to let them know what has happened and what steps are being taken because of it.  It is also very important to record these expectations and time frames in writing.  One of the most important things regarding communication is the documentation.  If a matter is of great importance, a full blown contract may need to prepared, and for routine matters, a simple form may be sufficient; at a minimum, email communications and confirmations should be kept.  The more information that is in writing, the more the other party’s expectations are going to be memorialized.  It is our finding that there will be a lot less legal exposure if you’ve been forthcoming with what needs to be done when and when these expectations are documented.


Another thing that is very important is to pick your battles.  If something goes wrong, own it.  Let others know WHY you weren’t able to produce or accomplish what was necessary. It is our finding that the other party recognizes that things don’t always go as planned.  I’m not urging you to not meet deadlines or expectations, but if there is an error or reason why, own it and be sincere. It is far cheaper to say “I’m sorry”, than to hear the words “You have just been served”.  Sometimes absorbing a cost can avoid litigation on something else later on.  Do not try to cover errors or problems up.  “Glossing over” a situation is almost always worse than the problem.  It almost always invariably leads to legal problems AND trust issues.  Ultimately, a business relationship is based on trust.


The third thing is don’t take legal advice from someone who is not a lawyer.  You should not rely on how “someone else” did something.  Just because certain legal advice works for a particular situation that may be similar, that guidance may not be exactly what is needed for circumstance.  The point is you need to look at what it is you do and focus on the voodoo that you do in your line of work.  If a legal matter should arise, and you would like to avoid legal problems, involve your legal counsel. Relationships are important and with legal matters, one size does not generally fit all. It is certainly true that in our practice we utilize some base forms, but the law is not a commodity that can be sold as one for all.  There are some things that can be done with computers, websites and robots, but there is nothing that can replace the advice of a qualified, experienced lawyer.  If you don’t have the time to do it right, when are you going to have the time to do it over?


Fourth item to bring to attention is that you should do what you say it is you are going to do.  Timely performance in accordance with expectations is a great way to avoid legal problems.  This is particularly important when dealing with employees.  If you have an employee handbook, FOLLOW IT.  With an employee handbook you have certain procedures and policies, but often times they get ignored, right up until there is a problem.  The problem really occurs when you have to discharge somebody.  All of a sudden you look back at your policies and realize disciplinary actions and warnings were not followed and/or were not enforced.  It’s also important when working with another party to actually produce, do, or perform in accordance with the expectations.  Again, hopefully those expectations are memorialized in some type of contract. To the extent you do what you say you’re going to do, it will absolutely minimize legal exposure.  Something very important is to have proof of performance, which could be some type of receipt, a type of acknowledgement, or even something as simple as an email. It’s one of those things you can document and get the other party to confirm that what was required has been provided.


The last, but arguably the most important, and yet the easiest and hardest of these items is DON’T BE A JERK!   People don’t generally sue people they like working with. Whether it’s the way you conduct yourself or the way your staff acts, don’t be a jerk.  A formation of the golden rule: That which is hateful to yourself do not do to others.  If you can follow this simple maxim, you can avoid 90 – 100{7643a07be85def2dedbecc56bad3bab67e83a7c22b809f3c7a47a1fa73b8911c} of all the legal problems that could confront you in your business.


It turns out that in almost every business lawsuit, miscommunication is something that appears in one form or another.  As best you can, communicate clearly, because if it’s important enough to say, and it’s important enough to do, it’s important enough to be properly communicated.  Be honest and up front with those you work for and with.  Make sure you leave the legal work to the professionals as one person can only do so many things and do them well.  Follow through with what you say you’re going to do and DON’T BE A JERK!


For help in avoiding legal problems, contact the Kreamer Law Firm, P.C. at 515-727-0900, or at info@kreamerlaw.com.

What are the Steps in Selling a Business?

Very few people sell multiple numbers of businesses.  Accordingly, MOST businesses are sold by “first time” sellers.  The purpose of this article is to provide you some insight on the steps you should take in the course of selling your business.

  • Self-Assessment
    • Are you in fact selling a business?
      • If you are the key employee and if you have all the contacts it is possible you are selling a JOB and not a business.
      • The hallmark attributes of a business (as distinguished from a job) are:
        • They maintain and follow established systems and procedures
        • They produce regular, reproducible results
        • Reoccurring clients/products
        • There are no indispensable employees (including YOU)
    • Why are you selling this business?
      • Unprofitable businesses rarely sell. Commonly they simply close.
      • Burn-out and retirement can be seen as an opportunity for a change on both leadership and ownership.
      • Looming industry changes can dissuade a buyer.
    • Who are the most likely buyers for the business?
      • An internal buyer (family member or key employee)
      • An external buyer (most often a competitor or someone in the industry seeking to enter the market)
    • Consider a pre-sale audit
      • Do a SWOT (strengths, weaknesses, opportunities and threats) assessment
      • Do an appraisal of the BUSINESS
      • Do an internal review of your legal infra-structure
        • Employment agreements with key employees including non-compete agreements
        • Agreements with key vendors
        • Lease agreements
        • Assignability of key contracts (including the foregoing)
      • Do an internal review of your “systems’ and procedures.
    • Identify “QUALIFIED” buyers
      • Qualifications of a buyer in a successful transaction include:
        • Experience with either the particular business or the industry in which the business is operating
        • MONEY
      • Business brokers exist and can perform a VALUABLE service (for which they intend to be paid)
        • NORMALLY the Seller (or the Seller’s business) pays the broker.
        • NORMALLY the broker represents the Seller
        • Brokers can sometimes provide industry insights due to specialization (example a broker who deals primarily with restaurants may have insight into the local restaurant market).
        • Brokers primarily provide potential Buyers with information given to them by Sellers. Brokers sometimes, but rarely, verify Seller information.
        • As with all professionals, some brokers/brokerage firms are better than others.
      • Selling a business which is subject to a franchise can be tricky.
        • Franchisors normally are permitted to withhold franchise rights if the buyer does not “qualify” as a franchisee.
        • “Qualification” can be based on experience or finance or both.
        • If a potential buyer would otherwise qualify as a franchisee they are a better candidate to buy the business.
    • Determine an “Asking Price” for the business
      • An appraisal provides some indication of and independent assessment of the value of the business. These are as much art as they are science.
      • Sellers most often establish pricing based on:
        • How much they think they “need” to sell the business in order to:
          • Fund their retirement
          • Meet their subjective valuation of their efforts
        • ULTIMATELY, the BUYER determines the price of the business since they are the ones paying
      • Although no one wants to “leave money on the table,” it is important that the buyer is able to make a reasonable income.
      • The tax implications of the deal structure can influence the asking price
        • A Seller may take/get less for a stock sale v. an asset sale
        • Allocations of total consideration among non-compete agreement, consulting agreement, lease or other assets can influence the asking price
      • Assemble a team to assist you which should include:
        • Qualified business lawyer
        • Banker
        • CPA
    • Executing a Confidentiality Agreement
      • This is like dating- the parties begin to find things out about each other.
      • These are commonly signed before any information is given out about the Seller
      • While not a “standard” form, these agreements are generally all similar
      • After confidentiality agreement is signed the Buyer normally receives a significant amount of information about the Seller
    • Executing a Letter of intent
      • This is like going steady or dating exclusively- there is a significant interest in entering into the relationship.
      • It is normally non-binding (either party can still walk away from the transaction)
      • MANY transactions do NOT employ a letter of intent
      • This establishes the broad parameters of the transaction
        • Price- Normally 4 to 6 times 3year average adjusted taxable income
        • Terms of payment
        • Outlines, in broad terms, additional agreements (Seller consulting agreement; Seller non-compete; leases)
        • Outlines, in broad terms, contingencies to closing such as obtaining bank financing or franchisor approval
      • Be careful of broker provided documents. Sometimes these create a binding agreement before Buyer is ready to commit to the transaction
    • Due diligence (not really an isolated step)
      • This may commence upon the signing of the confidentiality agreement or may be deferred to the signing of the contract.
      • Due diligence refer to the Buyer’s investigation of the Seller and the confirmation of the information provided by the Seller. The investigation should be quite thorough and should include discussions with:
        • Key employees- and FORMER employees
        • Key customer/clients
        • Key vendors
        • Key industry individuals
      • Seller may restrict due diligence until there is a contract in place to avoid upsetting Seller’s employees, Seller’s customer/clients, and or Seller’s vendors/creditors
      • The due diligence investigation is- by far- the most important part of the transaction
      • Often the CPA firm of the Buyer takes the lead in conducting the due diligence
      • Regardless of when the due diligence period commences, Buyer should not close the transaction until they have fully satisfied itself with the results of the investigation and/or the future action Buyer may take as the result of the findings
      • Remember: past results may not reflect future performance
    • Executing a Contract
      • This is like the engagement of the parties to the transaction
      • This is the legally enforceable document which outlines ALL of the fine points of the deal
      • The contract will specify the terms of payment
        • Normally there is some nominal payment at the time of signing the contract for sale
        • About 75{7643a07be85def2dedbecc56bad3bab67e83a7c22b809f3c7a47a1fa73b8911c} of the total sales price gets paid at “closing”
        • About 25{7643a07be85def2dedbecc56bad3bab67e83a7c22b809f3c7a47a1fa73b8911c} of the total sales price gets paid in the form of a promissory note from the buyer
          • Terms and interest rate vary from deal to deal but 3-5 years is not uncommon
          • This loan is normally subordinated to other financing and therefore gets paid last. Hence it has the highest risk of non-payment
          • Because this often represents a significant portion of the “profit” on the transaction, it is important that it gets paid. Hence, the importance of having a qualified buyer will be able to conduct the business in a manner which will provide payment
      • The BULK of the document comes from the representations and warranties
        • These are the written memorialization of the assurances the parties give each other as part of the transaction.
        • These normally include statements as to:
          • Proper formation
          • No undisclosed liabilities
          • No pending legal actions (either governmental or private action)
          • Compliance with laws rules and regulations
          • Title to assets
          • Payment of taxes
          • Required approvals of the transaction
          • MANY other issues
        • Although Buyer checks into many of these matters as part of due diligence, Seller can be liable for representations and warranties which turn out to be untrue
    • There are often disclosure schedules attached to the contract which provide additional information. Example: a disclosure statement may supplement whether there are any outstanding contracts
    • There are often MANY revisions before a contract is finalized
    • The contract may establish post-closing obligations. These might include:
      • A covenant that the Seller not compete
      • An agreement that the Seller will help train the Buyer
      • A requirement that the Seller favorably introduce Buyer to customer/clients and vendors/creditors
      • A requirement that the Buyer provide the Seller with information about the business’ operations until the full purchase price is paid
      • Depending on the type of transaction
  • Closing of the Transaction
    • This is BOTH the wedding (for the Buyer) and the divorce (for the Seller)
    • Takes place after all pre-conditions have been met and approvals have been obtained
    • This is when the “real” money changes hands, the transfer documents are signed and exchanged and the buyer takes control of the business
    • Most transaction “problems” come to light in 6-24 months following closing

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