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Is There a Legal Review in Your Future?
Interview with attorney Bill Price, 2007-08 Chair of the Illinois State Bar Association’s Section Council, Section of Corporation, Securities, and Business Law, whose firm is www.growthlaw.com. Bill works for a variety of clients as “outside general counsel,” which means that he helps them with compliance, contracts, or transactions whenever they have a question. He also has a wealth of experience in mergers and acquisitions. Bill serves as an adjunct professor at the Illinois Institute of Technology where he teaches graduate school classes in high technology entrepreneurship (i.e., how to raise venture capital).
I spoke to Bill about the importance of a company conducting a legal review as a part of the business review process.
Paul R. Lloyd: Bill, what do you include in a legal review?
Bill Price: You want to conduct a legal review for any of three reasons: One, you are preparing to sell the company or purchase another one. Two, you are raising capital. Three, you are looking at risk management or operations issues.
What you include in the legal review depends on which reason the review is being conducted. If you are selling the company, then you want to be sure to get rid of risky things. This is a good time to buy out minority shareholders and clean up your documents and contracts. Look at your sales operations to make sure there is no channel stuffing. Look at your accounting method which can be either cash or accrual. Use cash accounting if at all possible because that makes you look clean to the buyer. Use the legal review as a time to eliminate pending suits, IRS issues or other known problems.
The bottom line is a legal review will show you how to make your business look clean, uncomplicated and profitable, the three things that make it easier to sell your company.
Paul: What are some other reasons for conducting a legal review?
Bill: If you are selling your company, outside investors or banks want clean books. They also want to minimize costs and having no legal or operational problems helps to reduce costs. For example, a legal review of your employee relations functions can help keep you union free, identify any undocumented aliens, and assure you are paying appropriate compensation for overtime. A legal review of your safety program helps to assure you are OSHA compliant and helps you avoid worker’s compensation issues.
Paul: So Bill, when is the best time to conduct a legal review?
Bill: Try to avoid doing it during your busy season. If you are planning to sell the company, have a legal review a couple of years in advance to give you time to clean up any issues. If you need capital, conduct the legal review in advance of the loan application.
Paul: What are some of the drivers that should cause a business owner to want a legal review?
Bill: Anytime you are contemplating an acquisition or planning to sell your business. Drivers include anytime you have issues in your routine operations when you are concerned about risk avoidance. Think about HR issues, business liabilities and regulatory compliance. The rule with the regulatory agencies is to make sure you don’t lose profits because you angered your regulator.
Paul: What are some legal review areas that you would expect to be more important for increasing ROI?
Bill: Make sure you have valid contracts so you can collect your money. That’s the first thing. Look at your employee relations to make sure you’re handling benefits properly. This helps you avoid problems with unions and regulators.
Make sure you are capitalized right for the stage of business you are in. If you are an L.L.C., your investors want out at some point. You’ll need to replace capital in four-to-five years. Or you’ll have to pay back angel capital or buy out key managers. Make sure you are positioned to raise the capital you need and have key person life insurance. Also make certain you have adequate buy-sell in place. Look at your retirement program for the management team. Who will you hire as replacements when people retire? And at what rates? Key you capital requirements to the company’s strategic needs. Planning prevents problems.
Paul: Any advice for small-to-midsize companies facing competition from larger competitors?
Bill: Stay customer focused so you remain on track with key delivery cycles and meet customer needs. Look for creative ways to structure your business relationships, such as longer contracts.
Paul: What are some legal best practices that companies should employ?
Bill: Put quality controls in place such as ISO certification. Make sure you are compliant with securities laws. Keep private memos updated. Make sure your taxes are in order. Follow standards that are written into the laws so that your paper work is in order.
Paul: Last question, Bill. Any tips for companies planning a legal review?
Bill: You can save money on legal fees by hiring your lawyer at a lower hourly rate on a regular basis rather than when you have a crisis. This really does two things. One, it lowers your overall cost for legal services, and two, it’s more likely to keep you out of a crises in the first place. It’s like the old adage – Don’t be penny wise and pound foolish. A half hour on the phone with your attorney can avoid court processes.
You know, business law is just about money. We’re not talking about people going to jail or the end of the business as long as you do what you should. Problems occur when you bury your head in the sand.
Contact Bill Price
William A.
Price
Attorney at Law
Growth Law
Warrenville, IL 60555
WPrice@growthlaw.com
www.growthlaw.com
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Associates, Inc.
30W261 Holyoke Court
Warrenville, IL 60555
630-393-6516
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