This article is presented with permission of the author, Martyn Hill, Attorney, Pagel, Davis & Hill, P.C., Houston, Texas

Even experienced business people are often novices at buying or selling a business. The transaction usually mixes financial risk with emotional feelings in anticipation of a career changing decision. This article attempts to better enable the buyer or seller to evaluate the multitude of issues and often conflicting advice.

TERMINOLOGY: Don't be intimidated by the jargon of the trade. Some of it is necessary to quickly communicate concepts between professionals while some of the jargon seems to stem from the self interest of the participating professionals.

RISK/REWARD: These two concepts correlate in that it is difficult to achieve significant rewards without accepting some risk. Risks and rewards share a common trait in that they often exist in finite (but perhaps unknown)quantities. Thus, every risk avoided by one person is usually allocated to another person. Allocation of reward often works the same way in that, for example, the seller's desire to minimize personal tax through long-term capital gains tax treatment is generally at odds with the buyer's desire to quickly depreciate assets and to avoid the additional latent (often undefined) risks associated with acquiring the equity of an existing company, as opposed to only its assets. There are few Right or Wrong answers in this allocation process. A successful transaction results from thoughtful tradeoffs.

WIN-WIN: As noted above, allocating the risk/reward pie is a tradeoff; but well thought out transactions try to minimize the overall risk while maximizing the overall reward. Some examples include: calculating the overall tax burden, from both the buyer's and the seller's perspective, and completing the transaction in a manner which minimizes the overall tax burden; cutting off third party claims by creating a new entity which acquires assets and avoids successor liability; and transferring the goodwill of the business in the best possible manner to maximize future profitability - thereby enhancing the size of the overall economic pie. Each issue which arises during negotiations should be evaluated by making an effort to transform the issue from a Risk/Reward allocation issue to a Win/Win issue.

PROFESSIONALS: In evaluating often conflicting advice from various professionals, consider their respective duties and motivations. The business broker, or M & A advisor, usually initiates the first outline of a desired transaction, and the broker's compensation is substantially contingent on closing the deal. The broker is primarily loyal to the client, but has an obligation of fair dealing with the other parties. Lawyers' duties are uniquely focused on their respective clients, with less obligation to the opposing party; and lawyers are generally paid by the hour, since conditioning payment on closing the transaction might compromise vigorous representation of their client's interests. Lawyers may fear losing an existing business client; but more often, lawyers fear that if something bad happens after the deal closes, the client will blame the lawyer for failing to protect the client's interests. The lawyer's risk grows exponentially when the deal closes; yet his reward may end with the sale of his client's business. Similarly, the accountant is motivated by a desire to retain and/or to acquire clients, but his risk grows from the potential of convoluted deals being undone by lenders or the IRS. Each professional wants to convey loyalty and competence to the client; yet the process can degenerate into a one-upsmanship advocacy that torpedoes the transaction or damages the goodwill. Professionals can draft voluminous documents concentrating on specific risks or rewards to their clients, but the seller's enthusiastic assistance in transferring goodwill to the buyer through support among existing employees and customers epitomizes the goal of Win/Win.