By D. Brian Reider
A standard part of the pre-flight instructions on every airline is the directive to “look around and identify the nearest exit.” That is good advice, because it allows you to be prepared if things do not go according to plan. Did you know that it also happens to be great legal advice?
I represent clients on a broad variety of matters, including real estate purchases and sales, leases, contracts, the purchase or sale of businesses, loans, incorporations, the formation of limited liability companies and partnerships, and many others. In every type of transaction, when I meet with my client, and we start talking about the deal, one of my first questions is: do you know where the exits are?
What I mean by this is “have you thought about the end of the deal, or how you might have to get out before the deal is over?” Some of my clients have thought this through, and have a ready answer. Many others, however, seem to have never considered the question before, and don’t have a clear and ready answer.
There are a lot of reasons for this, including our natural excitement about setting off on a new venture, and growing our business. Who wants to think about the bad stuff at such an exhilarating point? To those clients, I am sure I sound like the attorney version of Debbie Downer – always finding the dark cloud inside the silver lining!
For those clients, I try to explain why it is so critical to consider the “what ifs” of every transaction. What if the business does not perform as expected? What if your partner, who seems so wonderful, turns out to be impossible to deal with? Even the question of “what if the contract ends” is important to consider – how does everything get wound up properly.
Take, for example, a new technology contract in which you are having a company process your data. Does it address what would happen if the vendor can’t perform as promised? More importantly, does it allow you to get out of the contract without a penalty and does it address how such a transition to a new vendor would occur?
Even if everything goes right, what happens at the end of the contract – how do you reacquire your data and migrate it to a different provider? Think of the contract as a long hallway pointing to the exit at the end of the term – does the hallway also need other exit doors just in case along the way and if so, where should they be and how should they operate?
Or suppose you have a successful business which you think would really take off if you were to partner with another business that has also been successful. Everyone on both sides is optimistic that the business plans, the culture and all other pieces will come together well and that the resulting merged enterprise would be a dominant force in the market. But what if the fit is not as good as hoped? What if the cultures clash and instead of growing, the resulting business declines? How can you get out before it is too late?
There is no one single answer to these questions, which are always specific to the deal. But there are always ways to ask the questions that should be raised.
First, with the help of your attorney, walk through the proposed business arrangement and ask the key “what ifs.” “What if” the performance does not match the pro forma projections? “What if” what appears be a great business fit is not? “What if” the project finishes and needs to be wound up in the most efficient way possible? “What if” the lease ends and you have to vacate the premises – how much time do you need to make sure you can smoothly move to another location?
Your attorney is trained to look at just these kinds of questions, and to draft documents that can, if not totally resolve them, at least create a road map of what to do should an issue arise. The time to consider these questions is before anything gets signed and becomes binding. A small amount of planning in advance is very likely to avoid huge (and expensive) problems down the road.
* This article first appeared in The Press-Enterprise on May 15, 2016. Republished with permission.