#16 Navigating the Legal Harrows of Business Acquisitions with Mickey Fox

Intro: 0:13

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Jacquelyn Jackson: 0:47

Welcome Funding Insiders. On today's podcast, we got a legal maestro in the house, none other than the brilliant attorney Mickey Fox. You'll be diving deep into the world of navigating business purchases. Whether you are a seasoned entrepreneur or just dipping your toes into the business waters, this episode is your compass through the legal talk of buying and selling. Buckle up for the insights and a sprinkle of legal wisdom as we decode the art of business acquisitions with Mickey Fox. Mickey, we'd like to welcome you to our show. Thank you for being here today.

Mickey Fox: 1:26

It's great to be here and I love being on your show. I hope everybody's watching and learned a lot.

Jacquelyn Jackson: 1:32

Yes, definitely, we want them to do that. Hopefully they are listening and watching. Thank you so much for being with us. Again, mickey has actually been on our sessions, that's 14, 15, and 16. This is the episode 16. Where we are actually talking about a lot of legal parts that go to lending. We want to recommend that you guys go back and look at the previous podcast, which is 14 and 15, where you can learn more about the legal side of getting loans, whether you purchase it or you're doing partnerships or just contracts in general.

Jacquelyn Jackson: 2:05

This show that we're doing today is actually about navigating the business purchases. You know, I am a loan broker and as a loan broker, we have seen a lot of things to come through that could be prevented if people just knew. This is why we're having this show with Mickey today, because we want you all to learn the understanding of the business purchase process. Now, it's a lot to it, don't get me wrong, it is. It's not so much we can do on a podcast, but I wanted to make sure that you all understand what is expected out of you when you're actually going to purchase a business, what you should look for and how should you do it. So the first thing I understand on a business purchase process is that you need to understand the steps that are involved in the business purchase. So our first step we have you need to do research and planning. Whatever you're looking at, make sure you look into that business you are purchasing. As far as is that something that will kind of match up what you can do? I'm talking about experience, because they're going to look at that to see if you have that experience and if it's something that you see that's going to be feasible and other profitable for you. So you want to do that type of research as well as look at the location, look at the competitions and stuff like that as well. The next thing you want to give and I'm going to give you guys five. The second one we want you to do is to do diligence. Do diligence is where you're actually going to develop a review on the company's financials. So we want to look at their financials, we want to look at their records. You want to look at their contracts, their customer based things of that nature. So you want to do due diligence with that to see if it's any problem. Again, mickey is going to talk about some more legal stuff that may come up with all of this. That's why we got him here today.

Jacquelyn Jackson: 3:45

Number three negotiation evaluation. This is where it's really important for you to get a team, because there are some things you may not know and our team needs to include an attorney, which we have you today, and a CPA and maybe a business advisor. We recommend that you get those because you're going to go through the evaluation and you need people, professional, that know how to evaluate abuses for you. And then also, you want to work with negotiating what the terms are, and this is where your attorney is going to come in at. But again, mickey, I'll talk to you all a little bit more about that later on in the episode.

Jacquelyn Jackson: 4:18

The fourth one you want is the financing and legal consideration. This is all, mickey at this point, so he can tell you more about force financing and illegal considerations, such as drafting a purchase agreement, obtaining necessary license and permit, addressing regulatory compliance issues, things of that nature, because when you buy a business, you need to know what's the compliance that come with that business. We've been to the table where people come to us and they didn't realize certain compliance that they needed that the lender was asking for because they didn't go through a turning when it got to company. So it is important that you definitely get with an attorney to make sure that you are purchasing things that would make it where one you can refinance or you could actually go out and get money on the company and things of that nature. That's where they will come in to be important.

Jacquelyn Jackson: 5:06

Number five is transition and integration. Unless you buy a company, it needs to be clearly made or how you're going to transition, meaning that are you going to still be a part of the company or you're not. How much is the buyout and all that type of stuff? If it is about you know, all that stuff is where a lot of legal stuff come in and again, mickey, as an attorney, can kind of give some ideas of some information toward that. So I wanted you all to know those steps Now. Even though these steps are broad overview of business purchasing and it is, it is important to approach each step with a careful consideration and attention to the details. Okay, so those are the five I just wanted to make sure everybody had. It is a lot more to it, but those are the major ones and it's pretty general that you kind of can go from there and figure out for us a process of purchasing.

Jacquelyn Jackson: 5:54

The next thing how does the role of financing adds to that? Well, financing adds to the purchasing of the fact that we provide the money. But in order for the money to be provided, you have to have things in place to set up that they're going to be willing to give you the money to purchase the business, meaning checking them out, making sure you do all the due diligence on them, but also do due diligence on yourself, Okay, to make sure there's not going to be any red flags or something that may stop you from actually purchasing a business. So what we're coming in at, those things need to be taken care of in order for us to give you a funding. And that's where Mick is going to come in on the legal side to talk about how his part plays when it comes to purchasing a business or what some things you need to look at.

Jacquelyn Jackson: 6:36

Now I do want to say this that we're only giving this as educational purposes for you guys, because we do have a turning on the show, but we want to give a disclaimer that he's actually just giving some education information If you guys want to seek him an attorney to talk to, then definitely you can reach out and contact him, because his information is available too on our show. It's also in the show notes as well. Okay, so we do want to do that. So, mickey, I'm now going to turn it over to you, because now we're going to go to the part of the show that's dealing with you, which is the legal aspects of the business loans. So again, welcome, welcome, thank you for being back. If you would, let's start off with the legal aspects of business loans period. Let's start that conversation how that works.

Mickey Fox: 7:19

The legal aspects of business loans. Well, I look. First and foremost, what you're doing is you're going to do a contract with your lender. That means that you're going to promise to pay your lender certain amounts, certain interest rates and upon certain conditions if they give you certain amounts of money.

Mickey Fox: 7:35

Right, Also in the agreement you're going to be telling them that well, as far as your assets go, or maybe your ARs, your accounts receivables, things like that that you're not going to get rid of those without their permission. You really have to look at the documentation to see how this loan is, to see how this loan is securitized, to determine what you can and you cannot do once you have the loan. But before you get to the loan, before you actually sign on the double line, you want to have somebody explain to you what that means to you and how it might affect your business before you get into it. I've seen people get into loans and then be so frozen up with all their assets they really couldn't do anything and it kept them from being nimble enough to do businesses that needed to do it. So that's the easy part here. I know that Jackie said a little bit about you know, when you're buying a business you want to have your agreement in place and all that. You want to understand what you're buying. When you first start thinking you want to buy something, come talk to me.

Mickey Fox: 8:46

Doing due diligence is a it can be a very long process, but if you're going to buy a business, you got to make sure that business can support what that person's telling you is going to support. And they might say, look, you know we're doing revenue of you know 1.5 million a year. And well, maybe they are, but they're only, they're only netting out you know 25,000 a year. Well, that's not very productive for you. That may not be a good business. Right, you're going to want to look at their accounts receivable and their contract.

Mickey Fox: 9:22

Let's say they're a landscaper, they're going to have contracts out there for their, their business. You want to be able to look at those contracts and see how solid they look so that you can kind of figure out is that really going to be an ongoing source of revenue for you or are you going to renegotiate those contracts? When you look at the AR and those executive contracts, that's part of what's going to sustain whether somebody's going to lend you money for the business. So you know, for instance, when you come into Jackie, she's going to look at that. She's going to say, well, you know, his, his ARs are all you know, plus 90, plus 180 or whatever. We can't really lend on that because those death relief aren't good. They're not coming in. And let's say this at this point if you don't mind.

Jacquelyn Jackson: 10:05

Let's mention when you what you're saying, that AR, these are account receivable and account receivables is the money you should be getting and, like you just said, if it's 90 days out, you know that means the bank has to wait for 90 days, so that may not be something. So I want to explain that to people with. That was okay.

Mickey Fox: 10:22

Yeah, so usually in an accounts receivable if if something's past 60 days, if it's past 90 days, you start thinking that person's just not going to pay you Right, and so that's not really an asset you have to. I think the word Jackie we use is maybe factor that asset and say, well, okay, it's, it's maybe worth 20% of its actual value. And what that means is, you know, can you really collect it? Some companies you know you can collect from other folks maybe not. You know you can get a judgment.

Mickey Fox: 10:51

In my wall is full of judgments. You know I can plaster, plaster my wall, my wallpaper out of that just cannot be collected because people don't have any money. So you can get a judgment, it just cannot be collected because people don't have any money. So you want to, at the very beginning stages of acquiring business, sit down and talk with a team I do a lot of business advising to. I can tell people things like whether this is going to be a good addition to their business or whether they're getting too far afield, such as going to divide their interest up and they won't be able to maybe maximize both of those businesses the way they're going to do it.

Mickey Fox: 11:33

It's incredibly important to, at the very early stages of the game, figure out what the debts of that business are, if that business has a lot of debt or it's got pending lawsuits, or if there are contracts that are likely to go into lawsuit. Let's say it's a contractor that built a house and you know, of course, the new homeowner is never happy with the house. There's always something wrong with it and what are the chances that that homeowner is going to sue? Well, that's a potential liability when you buy that business. So sometimes we do asset purchases rather than actual business purchases, and that's something I can help you kind of discover to get through the process.

Jacquelyn Jackson: 12:16

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Outtro: 13:11

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Jacquelyn Jackson: 13:42

So when you say assets purchase I think you and I talked on this so what's the difference of purchasing the business or just purchasing an asset? Because you was talking about the different types of purchase they can do. Can you explain that?

Mickey Fox: 13:54

When you purchase a business, you're going to purchase the entire business entity. So that's everything suit the nuts, right. That's their limited liability company paperwork, that's their car, their building, their accounts receivables, their bank accounts, their intellectual property, their website, your email, that kind of stuff. But you're also, when you buy that entity, you're also buying into the exposure to liability. So you're going to be the member of the organization or you're going to be the sole stockholder of the organization and you've got some exposure there.

Mickey Fox: 14:37

It may be that what you want to do is just buy the assets out that. Maybe you only want the forklifts that work. Maybe you only want the accounts receivable that are 30 to 60 days or something like that. You may only want the lawn mowers or the newer lawn mowers. You may not want to drag the employees along because you really don't like the employees. There are a lot of different things floating out there that you may not. You know, if you're involved in the negotiation of business, a lot of times you get caught up with that number and you're not thinking about the smaller things, about those potential liabilities that are out there. A good one is, you know, especially when you have men and women working together is a potential exposure to sexual harassment lawsuits and things like that. You have no way of knowing what relationships were there before you buy the business, so sometimes it's better just to buy the assets that are business.

Jacquelyn Jackson: 15:40

Okay, but that's where you would come in as an attorney. If I come to you to look at a business I'm trying to purchase, can you help me figure out? Should I buy it as a business, all of it, or should we just buy assets? Could you help with that part too?

Mickey Fox: 15:55

That's exactly what I would do, and part of that you discover in the due diligence process as you're trying to gather this information right. You can't always be absolutely sure you're getting everything Okay, but there are ways when you suspect that there might be something out there. There are ways to build that into your purchase agreement so that you have maybe some hold back or something, maybe an earn out what am I calling an earn out to protect you a little bit against that exposure and that liability that you wouldn't pay right away. It might be paid a year out or two years out. Sometimes you may not know the business perfectly and you want to retain the owner as an employee for a few months. You can do that too.

Mickey Fox: 16:44

So it's not uncommon for me to see purchase agreements that have together with them employment agreements and you definitely want to turn you to work that out. So there's just a whole host of things that when you start negotiating that you want to get. I just had an individual in yesterday who wants to sell his business and he doesn't really know what to put in the contract. He doesn't really know what he's got available to sell and how to maximize the value of his business. So those are some of the things that we can do together and work with your CPAs and your tax guy. There can be tax implications to a lot of things, especially in a sale, but sometimes in a purchase.

Jacquelyn Jackson: 17:33

Right. It would be that Now I can tell you from us doing our closing, where we had people purchasing businesses and attorneys actually came in. You were a part, the lender had an attorney, and then my client had an attorney, and I saw then how important you guys were, because that attorney for him, my client, protects him, and I'm not saying the other one want, but the understanding that they work for the lenders. And so what I liked about that I found out and that's why we wanted you on this show too is that it's really important that we have a relationship with attorney when we actually think about even, like you said, purchasing a business, come see you before, so pay that money to have that first consultation on attorney, just so you all can at least go over it. I mean, do you not think that's a good idea that we start out just coming to you to have that first initial meeting, because I'm thinking about doing a business? Should I come to you then, or when?

Mickey Fox: 18:24

It's cheap insurance If you think about it.

Mickey Fox: 18:28

If you're going to pay 100, 150 million, million, five, whatever a business, a small cost of an hour or two at attorney's time to just make sure that you know what problems might be out there or what things you might be looking for is certainly worth the cost Right as a matter of fact, there are things you can insure against in a business transaction. You can actually get an insurance policy to cover some things. But you know, a lot of times I think people think that well, I need an attorney just for the document. But once you get to that point of writing the document, a lot of times the negotiation is pretty much complete. It's hard to go back on a sort of an agreement where you say I will pay you this amount for this and what you have in your minds on the buyer side and the seller side is probably two different things, and that's part of the attorney's job is to help you have that conversation with the person you're doing business with to understand more fully what it is you mean and what they mean.

Outtro: 19:37

Right.

Mickey Fox: 19:38

Because we don't want surprises at the settlement table. I've seen that happen before, where you get to the settlement tunnel and say wait, wait, wait, wait, wait. That was supposed to be there, Isn't that part of it? No, well, that's not what's at draft.

Jacquelyn Jackson: 19:50

Right.

Mickey Fox: 19:52

So it's really hard then at that point to go back and say, well, I'm not paying that for this company because this is not what I thought I was buying. But people think, okay, well, I'll have somebody at the settlement itself. We can help with that too. I will tell you that in the last few days of transactions there are documents going back and forth and a lot of changes get made and different versions of different documents get lost. I've seen situations where we're down at the actual closing where the document you have and documents they have I've got some very, sometimes significant differences and it's good to have the attorneys there so you can work it out right there.

Mickey Fox: 20:42

So that's just a few of the things that you can say Post-closing. It's always good at least have an attorney help you get all the documentation right. So if you buy an LLC, for instance, you need to update your LLC agreement, you need to update your resolution, you need to ratify certain things like the contract, the sale itself. You need to update the securities date. There's just a ton of things you may need to do. If you have business licenses this is the compliance side that I think Jackie was talking about You'll need to update those licenses and, matter of fact, before you even get to that point, you want to make sure those licenses can transfer.

Jacquelyn Jackson: 21:20

Oh yeah, that's true.

Mickey Fox: 21:22

Especially like if you're buying a bar or something like that, you want to make sure that you're gonna have that alcohol license, because if you don't have the alcohol license, then all you have is a soda shop.

Jacquelyn Jackson: 21:33

Right. So you, it sounds like to me that you can give us a due diligence list to start with, if we're starting with our business, if we're looking at purchasing a certain business, which I think is smart, and I think it's the time of us doing business where we did it off our hips and just you know, based on what somebody tell us and all that stuff. Those days are gone. We have to have. If you want to grow and be successful, you have to have professional people in place to help your business grow. You can't just do it by yourself, because it's not going to grow and then, like you said, it's a struggle. And then, when it come to the lending side because I understand money, having a business loan helps the company grow right. So if you don't have that, or you're not qualified to get it, you know, because you're not set up right or your contracts are not right, or you purchased a business, or about the purchase of business that that the bank is not going to take. Now this is the thing people need to understand. I need you all to listen to me real good.

Jacquelyn Jackson: 22:26

What Mickey knows as attorney, the lender already knows. Okay, so he, having attorney, is bringing you what you need in order for your loans to go through without so much of a hitch. You know what I'm saying. That's what's so important about having an attorney to come in in the beginning of you purchasing this business, because you're going to come to me, to us, as a loan or a lender at the end but, like he said, you've already. If you haven't done what you're supposed to do, the damage is already done. So that's where he's coming in at, and I think that's great. Do you agree what I'm saying? Pretty much, mickey, as well.

Mickey Fox: 23:01

Absolutely, absolutely. I mean, there's nothing like getting to the closing table and finding out that somebody's a certificate of, of incorporation or whatever, has been suspended because they haven't filed their, you know their franchise tax Right right.

Mickey Fox: 23:18

Right, it's not that it's a huge problem. It just takes time to get done because you got to deal with, you know, the the tax side of things and they got to deal with Secretary's Day. So it's those little things that can save you an awful lot of time, right, and when you have time you can get them done less expensively. When you have no time, it always costs a lot of money and that's not something that I want somebody to have to do. Don't spend a lot of money. Take it easy, take it slow, get all your ducks in a row and draw upon the, the wisdom experience of people like Jackie or me or a really good accountant, to help you kind of plan the steps that you need to take to get where you can be before you get to that closing or before you actually get to the underwriting stage.

Jacquelyn Jackson: 24:05

Right, right, and so I agree with that. So we need to do that. So basically and I want to say, this part that you had mentioned about is taking so long on the lending side, when it comes to purchasing a business, they're going to require financials and if you're to giving them this quarter financials and then you have a lot of stuff that's not where it's supposed to be and it's taking weeks and weeks and months longer. Your financials. You gave the first quarter. Now you're going to have to give some new financials.

Jacquelyn Jackson: 24:32

Okay, so what we're saying here is that by putting him in place and having the accounting and really the attorney seeing him before you purchase a business, like you said, it's like insurance. It's cheap insurance it will save you down the line. If even if it's not time, because your quarter of what you can show that you made the first quarter, you may have less the second quarter, you can't afford to actually have them come, pull the second quarter up. So that's why it's important that you want to get your stuff set in place where everything can move smoothly and move with times. So what I want to say last, not well, yeah, last would be more if you would, mickey, when it comes to choosing the type of attorney to actually do this. Can you give us some ideas of what we need to look for when we are buying a business? What do we look for?

Mickey Fox: 25:20

an attorney- well, first of all, it's going to be somebody that you like in a way, and I don't mean that necessarily that you you want to hang out with them and drink beer with them, but I mean somebody that you feel like you can relate to. That person should afford you respect. You know you're a business person. You've been, you've been doing the work, you've been putting in the hours, you've gotten to the point where you need to get funding for some reason or other. The second thing you want to look at is not so much whether the attorney's driving you know, a two-tone, rusting great train or car you know, or whether they're dressed in fancy clothes or whether they have a fancy office, but whether that attorney exudes a kind of confidence in in what they're doing so that you can believe they know what's going on. The other thing is is you can kind of tell from an attorney's service offerings whether they kind of specialize in that field and I don't mean to use the term specialized, but if that's, if that's the kind of work they do, specialization is very particular to the Texas bar. They've got certain tests you can take and things like that. You can get us what we call a specialization thing. But is that the area in which they function? Do they know what's going on? There is this part of regular part of their business.

Mickey Fox: 26:49

And I think another thing you want to ask is whether they ever litigate these kind of matters. And the reason I say that is I've learned more about doing business transactions through litigating them than I ever did through a book. And when you litigate things you have to research a lot of issues. You come to understand what judges are looking for, what juries are looking for, and you also understand what works and what doesn't work, what would lead to litigation. The idea is to avoid it. So if we can front load the litigation avoidance and then we can do that, we'll do that. And also, you know, feel free to ask them.

Mickey Fox: 27:34

You know what happens when deals go bad. You know how do you, as a attorney held you, help the client get out of bad deals. Is there a way to do that? What kind of services do they offer post transaction? What kind of plan can they put in place? Generally people tend to look at cost. You know they say, well, how much you charge and you can kind of tell at that point whether something's going to go with it or not, but one of the things you're going to remember is, if you get a really good attorney, they may charge a little more per hour, but they can get it done much more quickly, so that actually saves you money and time is important, it's one of the most important part.

Mickey Fox: 28:19

So, like I said, you want to have somebody who you feel confident in, somebody who you think really does understand what they're doing and do they understand your business? There are certain lines of business I won't mess with because I don't know anything about them, but I can tell you you know a whole lot about construction business. I can tell you a whole lot about doctors, practices and things like that. That kind of stuff I deal with regularly and so I kind of know what to look out for. And again, that saves you time.

Jacquelyn Jackson: 28:54

So basically, what you're saying is that we need to get someone that's already kind of doing what you need to have done right Basically when it comes to attorney there's no sense in paying the attorney's alarm on your dime. Because that bill me for that, wouldn't it?

Mickey Fox: 29:08

Oh yes, ma'am, I certainly would, and I understand.

Jacquelyn Jackson: 29:13

Okay, well, I appreciate it. Is it anything that you'd like to tell us, our listeners, any last minute words or call of actions you'd like to give?

Mickey Fox: 29:22

Well, I think the smartest thing in the world is to find folks that you're working with who have a good network of people to draw from experts and folks who are particularized in their field. It doesn't do you any good as an attorney, or even as a client, to be that single point that is supposed to know everything, because there's just no way you can. And remember that things change all the time. The law changes all the time and it's part of my job to kind of stay up on the changing laws as they happen and recently a lot of laws have been changed. But I think maybe the biggest thing is to remember what you do, remember what you're trying to accomplish and make sure that this financial decision that you're making is going to suit you. Don't overextend yourself, don't grab it just because it's there and a really good attorney will sometimes tell you no.

Jacquelyn Jackson: 30:36

That is so wonderful. That is great. Well, mr Mickey, first of all, I enjoy every time we talk and I appreciate you so much taking out your busy day, because I know you're so busy to come and talk to our listeners and we really do appreciate that. Thank you so much for coming and, of course, down probably the rest of you would probably have you coming back for sure, definitely, thank you. Thank you so much for being a part of our show.

Mickey Fox: 30:58

You're so welcome, Ms Jackie. I love you. I love being on your show.

Jacquelyn Jackson: 31:02

Well, I know, and you're good, good, so this is going to wrap it up. So what we want to say is the wrap on today's podcast Insiders is, after unrevealing the complexity of businesses, purchases with the legal, mickey Fox, here's the key takeaways. In the excuse me in the friendly dance of buying a business, legal clarity is your best partner, from due diligence to contracts. Mickey emphasized the importance of having a legal master by your side to walk through the process seamlessly. So, expiring business models, remember, when navigating the purchase terrain, having an attorney in your corner isn't just a choice, it's legally and it's a legal dance that leads to success.

Jacquelyn Jackson: 31:54

We want to thank you all for coming out and for our listeners. If you like what you heard, if you like what you heard and would like to stay informed about getting money for your business, then listen to TDJ equity funding Insiders podcast on all major podcast platforms. If you would also like to be part of our funding Insiders community, where we're giving out documentation and information about lending process and more, subscribe to www at TDJequity LLCnet backslash podcast until next time. Thank you, and you all take care.

Intro: 32:48

Insidersnet. Until next time, take care.