At lunch yesterday, I had the guilty pleasure of hearing “war stories” from a group of lawyers, accountants and bankers. Sometimes lunch with this crowd is yawn-inducing, but these guys were on a tear and each told of an unlucky client who had accidentally lost millions in a business transaction.
My favorite story was of a guy who bought a small company. The seller and he had agreed to “draw a line” on the date he purchased the business. Any sales the company made before that date belonged to the seller. Any sales made after, of course went to the buyer.
Seems innocent enough. In fact, I signed an agreement exactly like this when I sold my business. What could go wrong?
The revenue was substantial – a couple million dollars – and the new owner had to realize it as income before transferring it to the old owner. Yep, you guessed it… the new owner had to pay taxes on the income. He unwittingly paid $800,000 more than he bargained for.
Unfortunately, I have a few stories to tell on myself. Like when I agreed to do $200,000 work for a Portuguese company but did not now that my fees would be subject to 35% tax from the government of Portugal! Ignorance and lack of experience cost me $70,000.
Why do these things happen?
Because we don’t know what we don’t know… and as a result, we do not make enough use of experts when we negotiate contracts.
Most people (like me) have to learn the hard way. There’s a good reason why lawyers, accountants, bankers and CPAs are so plentiful. It’s because they provide real, meaningful and important advice to business owners. Imagine how many lawyers I could have hired for the $70,000 I sent to the Portuguese government? More than enough to negotiate a better contract!
Some business decisions have the power to change your life. Buying or selling a business is certainly one of those, but so are a hundred other decisions you make each year. You know you want to make a good decision…You know that you need good advice. Pull the trigger: ask for help.
I’m willing to bet that no matter how complicated your company is, you are not doing anything so radically new that a good business consultant or lawyer hasn’t seen something similar… maybe many times. You don’t know what you don’t know. And when that’s true, you should get better acquainted with the unknown.
“The Unknown is only Unknowable if you don’t Ask Someone who Knows.”
Or, put more simply: “When your money is on the line, there’s no excuse for not letting someone else review a contract.”
Dedicated to your (Well Advised) profits, David
PS: I eventually recouped the $70,000 in Portuguese VAT taxes, so sometimes these things can be fixed. If you need help reviewing your operations — or fixing a deal-gone-wrong — let’s talk! Call me anytime at 704-614-2701, or drop me a line on the Contact Me page.