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Retaining a Lawyer Just on Price, Bad Advice

“My brother-in-law knows a lawyer who charges $250 an hour. The guy you recommended charges $450 an hour. Why would I pick the lawyer you recommended when I can pay almost half the rate for the same service?”

David (not his real name) had retained me to sell his company. After many discussions with several interested buyers, he settled on a company like his, though much larger, from the upper Midwest that wants to establish a presence in the South. Just prior to receiving the buyer’s Letter of Intent, I told David it was time he retain an attorney who would walk him through the process of documenting the transaction and getting it properly closed {getting a lawyer involved before an LOI is signed is always a good idea; more about that in another weekly story}.

Anyway, other than his divorce ten years earlier, David never had reason to use an attorney. This transaction was going to be the first time he needed to have a relationship with an attorney. He asked for a few recommendations, so I gave him contact information for three attorneys I knew would be good for the size and nature of this deal.

About a week later, we met to discuss our process. David told me he liked each of the three I recommended but was surprised by their fee structure. David had made up his mind. “The three attorneys you recommended cost too much for what I need. Unless you tell me I’m making a mistake, I’m going with the $250 per hour guy.”

When selling a business, the selection of an attorney is an important decision, and the business owner needs to be the one making the decision. So if David wants the $250 per hour guy, that’s fine by me. But I wanted David to at least understand why he might be making a mistake picking a lawyer just on price. First, when the buyer is a private equity firm or larger strategic (corporate) buyer, they will likely be bringing top-notch legal talent to the deal. I told David he would want legal counsel who would not be overwhelmed by the buyer’s higher caliber of legal support. Second, it is often (usually) the case that, as the lawyer’s fee increases, he/she is bringing more resources to the transaction, and that often leads to a more efficient scope of services. Many times work can be done by a paralegal in the range of $150 to $175 per hour, and that work is overseen by the more expensive $400+ per hour attorney. So, the net cost to the client can end up being less than the “affordable” $250 per hour attorney.

Let’s face it, price is a dangerous basis on which to select any professional service, be it a barber, accountant, heart surgeon, or attorney. No one wants to waste money needlessly, but when it comes to guidance through the intricate legal issues involved with a business transaction, I encourage my business owner clients to raise the bar in terms of what he/she expects to pay. Many years doing this, I have had very few situations when the business owner client didn’t thank me for this advice.

JIM CUMBEE is President of Tennessee Valley Group, Inc. a retainer-based business brokerage and transition mediation firm in Franklin, TN. Cumbee is an attorney and has an MBA from Harvard Business School. Jim is the author of Home Run, A Pro’s Guide to Selling a Business. .  He has a wide range of corporate and entrepreneurial experiences that make him one of the most sought-after business transition advisors in the state of Tennessee. The names and fact patterns above have been changed to preserve the parties’ identities.

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Tennessee Valley Group

Jim is an attorney (non-resident status with the Missouri Bar) and though he no longer practices law, he has read and negotiated enough legal documents to fill a cargo tanker. He has an MBA from Harvard Business School and knows how Wall Street and private equity operates. Jim is a Tennessee Supreme Court Rule 31 listed general civil mediator with tons of experience helping business owners (large and small) work through sensitive problems to achieve winning results. He is the author of "Home Run, A Pro's Guide to Selling Your Business, Seven Principles to Make Your Company Irresistible."

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