In this series, Inside the Deal: Insights From Business Acquisition Pros, we are breaking down the roles of the key players in a small business acquisition. In Part 1, we looked at the business broker, the person who connects buyers and sellers and often determines whether a deal moves forward or falls apart. Building trust and credibility with brokers is key, because even if your first offer does not work out, the right broker will come back to you with other opportunities.

In this second installment, the focus shifts to another essential player in the acquisition process: the attorney. Having been involved in arranging financing for hundreds of small businesses, I have seen firsthand how critical it is to have the right deal team in place. One of the most important members of that team is the attorney. Choosing an attorney with real small business M&A experience is not optional. It is a necessity.

All too often, buyers make the mistake of hiring a family friend or a lawyer they know personally, even if that lawyer’s background is in real estate, litigation, or another unrelated field. Or they try to save money by hiring someone with a lower hourly rate. That approach almost always backfires. I have seen the wrong attorney kill a deal by focusing on irrelevant issues, negotiating on matters that belong in big corporate law, or taking a passive role instead of driving the transaction forward. Even worse, attorneys who appear “cheaper” at the outset often end up billing massive overages after closing.

The risks are even greater when the acquisition is financed with an SBA 7(a) loan. An attorney who is not familiar with SBA rules, requirements, and nuances can cause costly delays or derail a deal entirely. The right attorney, on the other hand, keeps the process moving, knows what to focus on, and protects the buyer from risks that are easy to miss.

That is why for Part 2 of the Inside the Deal series, I sat down with Michael Fine of Zand & Fine LLC, a seasoned attorney who has guided many buyers and sellers through SMB transactions. I asked Michael the key questions that come up in almost every deal, and his answers provide a roadmap for how buyers can protect themselves legally while keeping their acquisition on track.

The Interview

Jerry: At what point should a buyer engage an attorney? Many business brokers recommend submitting a letter of intent (LOI) or contract on their form. Is this recommended?
Michael: Buyers should engage an attorney as early in the process as possible, ideally before signing anything, even a broker’s standard LOI. While broker forms can be useful starting points, they are usually drafted to favor the seller and may omit important protections for the buyer. An attorney experienced in SMB transactions can review or revise the LOI to make sure it addresses key issues like exclusivity, due diligence timelines, and confidentiality. Having a lawyer involved from the start sets the tone for a smoother process and reduces the risk of costly surprises later.

Jerry: Many sellers want to enter into a contract immediately, while others are fine with a letter of intent that gives the buyer exclusivity for some time as well as a due diligence contingency period. Does it make sense to enter into a contract, even with a due diligence clause, or should we submit an LOI first? Is an LOI even legally binding?
Michael: An LOI, or letter of intent, is generally the smarter first step. It sets out the major deal terms, establishes exclusivity, and gives the buyer time for due diligence without locking them into a binding contract too early. Most LOIs are not legally binding with respect to closing the deal, though they can contain binding provisions around confidentiality, exclusivity, or how expenses will be handled. Jumping straight into a purchase agreement, even with a due diligence clause, is riskier because you are immediately negotiating the finer legal points of the deal before you even know what due diligence will uncover. An LOI creates structure and expectations without overcommitting either party before the facts are in.

Jerry: I was pursuing a deal recently where the seller wanted me to submit a good faith deposit. What is your opinion of those?
Michael: Good faith deposits are common, but they should always be handled carefully. Although we do not generally recommend providing a deposit, many sellers and brokers will insist on it. A deposit shows the seller that you are serious, but it should always be placed in a neutral escrow account, not directly with the seller. The agreement must clearly spell out under what conditions the deposit is refundable and when it becomes non-refundable. Without those terms, buyers risk losing money if the deal falls apart for reasons outside their control. A properly structured deposit can build trust, but a poorly structured one can become an unnecessary source of conflict.

Jerry: What are the most overlooked clauses in an asset purchase agreement that can come back to haunt buyers?
Michael: The representations and warranties of the sellers are perhaps the most overlooked aspects of any business transaction. The buyer is not purchasing a car or a simple physical asset that can be inspected and assessed with a reasonable degree of objective accuracy. The purchase of a business relies heavily on the integrity of the seller and related representations. The buyer is relying on the seller’s books and assurances that the seller actually owns the business, and the value may be primarily based on intangible assets. Sellers may want to include phrases such as “as-is.” But if a seller is not willing to warrant that it kept its books accurately, that its intellectual property is truly its own, and that its representations are true, then the buyer should be concerned something is amiss.

Jerry: How should a buyer think about structuring indemnifications to protect themselves post-closing?
Michael: Indemnifications are important because they protect from future, and often unseen, risks and liabilities. Some of the important indemnities are for liabilities, claims, and lawsuits that pre-date the purchase; damage resulting from misrepresentations of the seller; issues involving regulations or licenses; and costs and attorney fees incurred regarding any of these matters.

Jerry: Can you explain the difference between an asset purchase and a stock purchase, and why it matters?
Michael: There are two basic ways to acquire a business: an asset purchase and a stock purchase. A stock purchase acquires the seller’s interest in the actual business entity that owns the business. This is a simpler legal transaction, and the buyer ends up with everything the entity owns. The downside is that “everything” also includes the debts, liabilities, and potential liabilities of the entity. With an asset purchase agreement, the buyer only acquires specifically enumerated assets. This requires more detail in the agreement, but the advantage is that the buyer can exclude debts and unwanted liabilities. In most small business deals, an asset purchase agreement is the safer path, and can also have important tax advantages for the buyer. That said, a stock purchase can be the right move if the buyer needs control of the entity itself or if critical licenses and contracts must stay intact.

Jerry: What role do non-competes play in protecting the buyer’s investment?
Michael: A large portion of the value of a business is its goodwill, its customer lists, employees, vendors, and the uniqueness or quality of its goods or services. If the seller is permitted to simply open a competing business after a sale, the buyer is deprived of the value of what they purchased. Non-compete clauses are essential for protecting that goodwill and maintaining the competitive position of the business. Non-solicitation clauses are equally important to ensure that employees, customers, and vendors remain with the business.

Jerry: How do you approach negotiating with a seller’s attorney who is more aggressive than cooperative?
Michael: I prefer a win-win approach, even if it means not attempting to grab every possible advantage for my client. That approach saves clients significant resources and time and makes it more likely they will get what they really want: the business itself. That said, when faced with an overly aggressive opposing counsel, pushing back is necessary. I focus on isolating the red lines that I cannot let my client cross, and that is where I dig in. Everything else is just lawyering, and I try to keep my eye on the ball.

Jerry: What legal risks often hide in employment agreements, leases, contracts, or vendor agreements that buyers miss?
Michael: Each type of agreement has its own hidden features to watch out for. For example, operating agreements for partnerships or LLCs can contain commitments that catch members off guard. Members who believe they are insulated from company liabilities may still end up responsible for financial guarantees. I once saw a clause buried in the middle of a long paragraph on an unrelated topic in an operating agreement. It required all members to reimburse the managing partner for losses sustained when that managing partner signed a personal guarantee on behalf of the company.

For leases, lessees are generally obligated to pay rent through the full term with no way out. In some cases, lessors even include clauses requiring tenants to keep paying rent when circumstances prevent them from occupying the premises, even if it is through no fault of their own. Often, the seller’s lease is assignable to the buyer. If so, it is important for buyers to evaluate the term of the lease they will be taking on. If the term is too short, they may need to renegotiate with the landlord, which can mean higher rent or unfavorable new terms. If the lease is not assignable, they will have to negotiate a new lease with the landlord regardless. When the business’s location is critical to operations, this can be a major issue. Evaluating the lease early on is crucial.

Bottom line, all agreements must be read carefully. Better yet, have a lawyer review them to catch the details that can create major problems later.

Jerry: If a deal is SBA-financed, how does that change your role or the legal requirements?
Michael: Whether or not a deal is SBA-financed, our role generally remains the same. In any deal involving financing, the lender will have extensive documentation for the buyer to review and sign. We review those documents and advise the client on what they are committing to. We also try to negotiate the terms to protect our client. However, the larger the lender or the more regimented the financing program, as with SBA loans, the greater the volume of documents and the less flexibility we have to get a lender to change its protocols.

Jerry: What is one situation where legal oversight, or lack of it, made or broke a deal?
Michael: Deals most often break down during due diligence. Something about the business turns out to be not quite what it seemed, or the value is not what the buyer thought. Having a strong team in place is essential: an accountant, a valuation expert, regulatory consultants, and brokers. Just as important is having a team that works together toward the same goal. At Zand & Fine, we pride ourselves on working seamlessly with all team members to ensure clients know exactly what they are buying and ultimately get to the closing table.

Closing Thoughts

Talking with Michael underscores how vital it is to have an attorney who knows small business M&A and SBA 7(a) transactions. The wrong attorney can slow the deal, focus on irrelevant issues, or worse, cause the entire transaction to collapse. The right attorney, by contrast, drives the process forward, protects the buyer from hidden risks, and ensures the deal closes smoothly.

Stay tuned for the next installment in the Inside the Deal series, where I will be speaking with a financial due diligence professional about how buyers can avoid costly surprises.

About the Experts

Zand & Fine, LLC provides expert legal guidance on mergers and acquisitions and business agreements, including partnership contracts, buy-ins and buyouts, and corporate and operating agreements. They ensure that business relationships are built on a strong foundation for success. Contact them at [email protected], visit zandfine.com, or reach them via WhatsApp at 646-820-8579.

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About the Author
Since 2018, Jerry Freedman, founder of Freedom Business Financing, has helped entrepreneurs across the country acquire businesses and secure owner-occupied commercial real estate through SBA 7(a) and 504 loans. Drawing on his background as an accountant, auditor, and CFO, and a track record of closing deals across multiple industries, Jerry is recognized for guiding buyers with clarity and integrity from LOI to closing. Contact Jerry by visiting freedombf.com.