The Value of "Don't Do It" Advice
How much would you pay a lawyer to tell you not to do something?
A doctor wanted to buy a medical practice from the wife of a doctor who had recently passed away. The practice was located in a wealthy suburb of one of the largest metro areas in the country. The practice seemed successful on the surface.
The wife set the purchase price based on her personal understanding of her deceased husband's medical practice. She couldn't articulate an objective basis for the purchase price, but felt the price she set was normal for the market.
My client's CPA and I analyzed the practice's financial records to evaluate the purchase price. We discovered that the wife had grossly overvalued the practice and that the practice probably wouldn't be able to service the buyer's debt after the closing. I tried to negotiate a lower purchase price, but the wife held firm. I advised the doctor to abandon the deal, which he reluctantly did.
Then the CPA and I invoiced our doctor client approximately $2,000 for our combined work and advice. Was our "don't do it" advice worth our professional fees?
About one year later, our doctor client received a call from a young doctor who had purchased the practice for the purchase price set by the wife. The buyer wanted to know why our doctor client had passed on the deal. Our client explained his evaluation of the purchase price and the wife's unwillingness to negotiate. The buyer hadn't done a purchase price evaluation or even tried to negotiate the purchase price. Now he was about to default on a loan of about $1 million. Naturally, he was frustrated.
"Don't do it" advice is valuable. In the case of my doctor client, $2,000 worth of legal and accounting advice probably saved him $1 millon.