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Some Things Successful Deal Makers Do

For this installment, I thought I would offer some short bits and pieces of gratuitous advice on using a corporate lawyer, tips for independent businesses from big business practices, surviving a recession, and miscellaneous matters. Times are tough, time is money, so I’ll keep it short – see below.

Faites Attention: Famous Last Words

When you hear these phrases, think twice before committing yourself in a proposed business deal:

“You don’t need your own lawyer for this, it’ll just complicate things … we have to get this signed right now…”

“This is a friendly deal, getting a lawyer will kill the deal.”

“I’ll sell you my shares” or “I’ll do this or that…but I can’t/won’t put it in writing, we can just agree to do it.”

“We don’t have time to send this to the lawyers; we can clean it up afterwards.”

“We want to keep this deal simple.”

“But he/she said it was OK if the contract said that; they promised…”

“I know you advised me not to do that, but I thought it would be alright because…”

“We can’t put this in writing … don’t you trust me?”

“I thought his lawyer was acting for me too…”

Some Things Successful Deal Makers Do

As my bio on this website indicates, I was trained at an excellent mega-firm on how to do mega-deals, and I constantly try to adapt those principles to small business deals where feasible. Here are some of the principles that sophisticated large deal-makers follow with their solicitors as a matter of course:

1.      Hire your own lawyer: Only your own qualified lawyer can and will protect your interests.

2.      Get your lawyer involved early: Consult with your counsel before the deal is negotiated to flush out crucial issues and answers, before mistakes are engraved in stone.

3.      Trust your lawyer fully: Fully inform your lawyer at the outset to ensure they get the big picture and the details early. Provide documents, facts, documents and contact info ASAP, so he can hit the ground running for you. Admit problems and mistakes to avoid ambushes.

4.      Let your lawyer do the talking: Once the parties have their lawyers involved, channel all communications thru your lawyer, except where expressly agreed otherwise. This protects your deal strategy and prevents missteps.

5.      Details matter: The devil is in the details, always. Pay attention to factual and legal details. Make notes in a chronological diary to ensure follow-up. Use checklists and diarize deadlines. Read every document, word for word, at least once, and then review all later changes to drafts.

6.      Make timely decisions: When you have the background info and advice on a question, make the decision and stick with it unless material facts change.

7.      Follow advice given: Follow the legal, tax and accounting advice that is provided to you by your team of advisers, or fire the adviser if you don’t have confidence in them anymore.

8.      Understand the bottom line: Before negotiations start, determine your bottom line: min or max price, key terms, timing, key employees, etc., so negotiations and your positions will stay on track. Ad hoc-ery is risky business.

9.       When you have leverage, use it: Consider what you want from the other side in negotiations, and use your leverage to get it at an appropriate time.

10.    Know when to fold’em: Some deals just shouldn’t be done, at any price. Know a deal-killer when you see it: some things can be fixed or explained, some cannot. Integrity is an example – if you do a deal with the devil, you’re goin’ to get burned.

Recession Training, Part I

I’ve had the pleasure of surviving, barely, thru five or six economic downturns (that is, a period of time when my practice was negatively impacted by general economic conditions) so far in my 30 years as a business lawyer. I remember well the quiet months after 9-11. And, I did a bit of small business insolvency work in the 90’s for one of the big banks – I advised the bank when borrowers fell “out of covenant”, I wrote the demand letters and the receiver appointments, and I attended to the enforcement of security. This was not fun work, but I learned something about what not to do when times get tough.

This recession is barely started in Canada as a whole, but it’s well advanced in Ontario. Hang onto your hats, because it’s going to be a bumpy ride.

So, am I a savant when it comes to recessions? … maybe an “idiot savant” – the hard part is dealing with the element of surprise, the timing of these things, especially the start! One thing is for sure: you must make changes to your business operations and even its structure to get thru it.

I humbly offer you some practical tips for the survival of your business:

A. Tighten up your credit policies and practices: Ensure you have proper debtor names, addresses, owners, bank accounts for any credit customer. Require the owner’s personal guarantees on new or dodgy accounts. Monitor all overdue (+30 days) accounts payable. Provide for interest at a disincentive rate – say 15% – on overdue accounts and feature it prominently on your invoices.

Keep communications open with troubled accounts. Act immediately if a customer with a big overdue account goes quiet – doesn’t return calls, makes no new orders, partial payments are stopped. If a customer doesn’t pay in the usual time, and then alleges defects or dissatisfaction, resolve the dispute right away. Refuse new sales to late-payers until old accounts are paid-up or at least you can get a written deal on catching up the arrears. Use C.O.D. or down payments instead of normal trade terms if you have any reservations or past history with a new or current customer.

For larger projects or products, you should consider taking PPSA security in a timely fashion. Make the best deal you can to get old debts paid – sometimes 50% is a good return as compared to suing. Offer monthly payments to make payment easier, but get the total amount acknowledged & the payment plan in writing in case you need to sue on it later on.

Convey to customers that your business doesn’t include acting as their bank of first resort (numerous articles by business gurus tell firms to use their suppliers as lenders – that’s fine, as long as it isn’t you). Let your customers know you expect to be paid a reason amount in a reasonable time.

B. Employees: Talk to your lawyer before you start firing/laying-off/downsizing people – “not enough work” is not “just cause”! There are options available in many cases to minimize huge severance obligations – if handled properly before the termination.

Test the waters with the staff for pay or benefit reductions to save cash, and to thereby avoid the need for terminations. If you go that route, be sure to obtain written consents to avoid constructive dismissals, of course. Get your best employees to buy into the idea of making some sacrifices to survive and thrive in the longer term; set a good example for your employees by cutting back on your salary, perks and extras, if you want loyalty and buy-in. Hire new people on contracts that can be terminated with minimal notice or compensation.

C. Your Creditors: Maintain all of your statutory payments (CRA, GST, RST, WSIB), because they can shut you down quickly, and directors have personal liability for non-payment. Maintain regular communications with your banker, and don’t say anything that will damage your credibility with them (undue optimism or fatalism). Keep up debt payments, if possible, and be optimistic about the future (if you’re pessimistic, what choice does the bank have but to call your loan to avoid further losses?). Start looking for ways to refinance if the bank caps your operating line or makes noises about requiring pay-down or payout. Divest non-core assets to pay down debt or create working capital, or put more capital in – now, before it gets really ugly or too late.

D. What Else? On Yeah, the Customers: Read this very slowly and carefully: Kiss – Their – Ass!

People are justifiably cranky these days with the financial crisis and awful winter, so it won’t be easy to nurture your core business customers. Notice I say, “core customers”. We independent business owners sometimes run around in a mad panic for clients that end up paying slowly or not at all, complaining or being unappreciative, and never referring us to other potential clients. Often, those kinds of customers leave you and go elsewhere no matter what you do. So, analyze your customer base, and be really nice to your really nice clients. This will make you feel good, plus it makes sense and will pay dividends.

Competition for your best patrons will become more and more fierce. Respond to their calls or emails first. Offer something extra and valuable to them, even if it has a modest value. Give fast-paying, appreciative clients a “goodwill discount” of up to 10% for their prompt payment of an account. Take a customer to lunch or just buy them a coffee. Do you know how tough and expensive it is to bring in one new customer to replace a core client?

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