12 Aug The Hidden Dangers of Buying a Business
And How to Avoid a Financial Nightmare
How “Saving” on Legal Fees Cost One Buyer His Dream . . . and Nearly Bankrupted Him
Two years ago, “David” thought he’d scored the deal of a lifetime.
He was buying a small manufacturing company for $7.8 million. It was a profitable business with loyal customers, solid revenue, and an owner eager to sell.
David wanted to be smart with his money. So instead of hiring a mergers & acquisitions attorney to guide him through the whole process, he decided to “save” by only paying a regular business lawyer to draft the purchase agreement.
No due diligence review. “I can handle that myself,” he said.
No analysis of the seller’s key contracts with vendors, suppliers and his landlord. “Seller says those agreements are all straightforward with no issues. I trust him.” he thought.
No digging into the company’s structure, leases, or regulatory compliance. “That’ll all get worked out one way or another post-closing,” David assumed.
“Why pay for all that?” David reasoned. “I’ve already reviewed the financials, the seller seems honest, and I just need a contract that says I’m buying the business.”
His legal bill was under $15,000. He patted himself on the back for keeping costs low.
But six months after closing, reality came crashing in.
First, a vendor sued for $180,000 in unpaid invoices the seller had “forgotten” to disclose. But under the way David’s deal was structured, he was on the hook.
Then the landlord refused to renew the building lease, citing a clause in the original lease that made it non-transferable without his approval. An approval the landlord never gave.
Finally, the state slapped David with $90,000 in regulatory fines for compliance violations that had been ongoing for years.
All of it would have been discovered, and negotiated out of the deal, with proper legal due diligence.
Instead, David’s “savings” on legal fees turned into hundreds of thousands in losses, a failing business, and a nightmare he’s still untangling.
Myth: All You Need a Lawyer for is a Purchase Agreement
Buying a business is supposed to be an exciting opportunity.
A chance to expand, increase profits, and build long-term wealth.
But make the wrong move, and it can become a financial disaster that drains your bank account, entangles you in lawsuits, and leaves you regretting the day you signed the deal.
Too many business buyers walk into business purchases blind, thinking the only thing they need a lawyer for is drafting a purchase agreement. Worse, they assume legal fees should be a cheap afterthought. A mere formality.
Big mistake.
Because what you don’t know can bankrupt you.
Here are the top legal pitfalls buyers overlook. And why having the right lawyer, a specialist who handles business purchases and sales (not just a regular business lawyer) is the difference between a smart investment and a financial catastrophe.
1. Hidden Liabilities: You May Be Buying More Than You Bargained For
That company you’re buying? It could come with undisclosed lawsuits, tax debts, unpaid vendor invoices, or regulatory violations. And if you don’t structure the deal correctly, guess who’s now responsible for them?
You.
A proper legal review uncovers these landmines before they blow up in your face. If you try to cut corners, you could be blindsided by surprise bills, lawsuits, and government fines months (or years) after you close the deal.
2. Contract Traps: The Fine Print That Can Wreck Your Deal
Sellers will always paint a rosy picture, but the contracts they have with customers, vendors, and employees tell the real story. Are key contracts even transferable to you as the new owner? Or will major clients walk as soon as you take over?
You also need to dig into non-compete agreements, employee obligations, and intellectual property rights. Otherwise, you could buy the company today and watch the seller start a competing business tomorrow. All while taking their best employees and clients with them.
3. Financial Smoke and Mirrors: Are You Overpaying for a Failing Business?
Sellers love to show you their best numbers. But are those numbers real?
Inflated revenue figures, misclassified expenses, and hidden debts can turn a “great deal” into an overpaid disaster.
Your lawyer, working alongside financial and tax professionals, ensures that the business actually makes what they claim . . . before you sign on the dotted line.
4. The Wrong Deal Structure Could Cost You Millions
Buying a company isn’t just about price. It’s about how the deal is structured. Should it be an asset purchase or a stock purchase? What about indemnification clauses, escrow holdbacks, and post-sale liability protections?
Get this wrong, and you could be stuck paying for the previous owner’s mistakes long after the ink is dry.
5. Thinking “Cheap” Legal Help Will Save You Money? Think Again.
If you’re approaching legal representation with the mindset of “I just need someone to draft the contract for cheap”, you’re setting yourself up for failure.
A $5 million acquisition with poor legal due diligence can turn into a $2 million loss overnight. A good M&A lawyer doesn’t just write contracts. They protect your investment, identify risks, and make sure you’re not buying a sinking ship.
Protect Your Investment. Before It’s Too Late
Buying a business is one of the biggest financial decisions you’ll ever make. Done right, it sets you up for decades of success.
Done wrong, it can ruin you.
This is not the time to bargain shop for legal help. It’s the time to invest in protecting your future.
We work with a select group of business owners each year to protect their investments, negotiate the right terms, and keep them from inheriting hidden liabilities. If you’re serious about buying a business, and about avoiding the nightmare David lived through, apply to work with us here: