Dave Cain: Welcome to unsuitable on Rea Radio, the award winning financial services and business advisory podcast that challenges your old school business practices and the traditional business suit culture. Our guests are industry professionals and experts who will challenge you to think beyond the suit and tie while offering you meaningful, modern solutions to help you enhance your company’s growth. I’m your host, Dave Cain.
I don’t know about you, but I know I’m no expert when it comes to the law. In fact, all I really know is that I’m quite content to keep my head down and stay out of trouble. That being said, because I don’t practice law in my spare time, it’s quite possible I’ve run afoul of the justice system without even knowing. I guess I can’t drive 55. And I imagine I’m not the only one.
It’s not that we don’t know the differences between right and wrong. It’s just that different scenarios are viewed differently in the eyes of the law, and that puts business owners in a particularly difficult situation. Because businesses produce products and/or services that directly impact others, owners are under increased scrutiny and are more likely to endure legal headaches. Therefore, it should go without saying that maintaining a working relationship with your legal counsel is kind of important.
Today’s guest is Chris Pycraft with Critchfield, Critchfield & Johnston, a regional law firm headquartered in Wooster, Ohio. Chris has worked with many business owners over the course of his career, and on this episode of Unsuitable, we are going to ask him how to get more from our business counsel. Welcome to unsuitable, Chris.
Chris Pycraft: Great to be here.
Dave: What I’d like to do is kind of start off and give us a little bit of maybe your elevator speech about Critchfield.
Chris: All right. Well, my marketing people are gonna be disappointed with whatever I say, but I started my career at Critchfield. I went to Wooster High School originally, and so I went home again when I started there. We have five offices. We’re located in the county seats of contiguous counties here in northeast Ohio, so Wayne, Holmes, Ashland, Knox, and Medina where are offices are located.
I sit in our Wooster office. And, like I said, I started my career there and we serve as outside corporate council. Most of our clients are business clients and we do just about everything except for domestic relations and criminal law. So we try to be a full service business firm and help out with whatever our clients ask of us.
Dave: Well great, and I think you noticed, noted to me that your firm is the largest, or one of the largest, law firms in each of the counties that you guys operate within.
Chris: That’s right. We try to focus our efforts in areas where we have closely held, privately owned businesses. They tend to be small, midsize businesses but they need sophisticated legal help. And we try to be a sophisticated legal advisor to them. We try to give them advice they would get in a bigger city and from a bigger firm, but at a hometown local price and that’s really how are firm works and how we try to work with our clients.
Dave: Okay. Thanks for that quick elevator speech and always wanted to ask an attorney this and I never had an opportunity to do this, but while you’re on the spot I might just put you on the spot. You’ve never been put on the spot before have you?
Chris: Not by you.
Dave: Certainly you watch a lot of TV, as I do, but is it, is practice and law anything like Law and Order?
Chris: Yes. I think my average day is just about like you see on TV.
Dave: What’s your favorite TV show that involves legal matters?
Chris: Probably, I have seen more episodes of Law and Order than any other legal drama.
Dave: There are like a million of those.
Chris: There are. That’s right.
Dave: Well, good. So now our listening audience knows it’s exactly like that goes down.
Chris: That’s right. So basically whenever you get arrested, you call your attorney and you go to court within about four or five hours. That’s usually how it works.
Dave: Perfect. Perfect. But, today what we want to talk about is basically as a business owner, how to specifically use legal counsel. That sounds like kind of an open end question, but we ran across both you and I as well, ran across business owners who not quite sure how to use legal counsel.
Chris: I think that’s a common problem and one of the ways that we try to make our clients fell comfortable calling is to be part of their team, to work with their other service professionals whether it’s accounting or finance, their banker, their investment advisor, depending on the type of business they often have others too. And one of the things I’ve always been jealous of CPA’s for is that you have a regular touchpoint with your clients. At least annually, you have a return obligation. Usually quarterly you have estimates or some other need to do internal financials or to get something to your bank or for some other reason there’s a need to be in touch with your accountant, and so you have a regular touchpoint and you have involvement in your clients businesses as an accounting firm.
And one of the things that people tend to do when they want to work with their lawyer is call when there’s a problem and that often is too late and so we often joke with our clients that an ounce of prevention is worth a pound a cure. And one of the things that happens when you wait to talk to your lawyer is you’re already experiencing a problem. Sometimes it’s a good problem. Sometimes you’re growing and you need to find a way to acquire more help or a new product line and you’re struggling with how to make that happen and fit within your existing structure.
Calling at the front end not only involves the attorney early and let’s him participate in the planning process, which I think a lot of professionals would agree is usually the most fun. But if you call at the back end after something’s a crisis, it tends to limit your options. You don’t have enough time to evaluate or consider or take action on options that may have been, may have required more time. And, it often tends to cost a lot more and that puts everybody in an uncomfortable spot when you’re trying to provide professional service. You have limited options and it’s expensive. Those are exactly the dynamics that you want to avoid.
So, call early and engage them regularly on your team.
Dave: So you’re a planner and a fixer, but you’d rather be a planner?
Chris: Costs a lot less and it’s a lot more fun.
Dave: So, one of the topics of discussion is actually when to involve your lawyer. And you started to go down that path, but let’s talk about maybe a transaction, a pending transaction. When should the lawyer be involved?
Chris: Well ideally, the lawyer already has some regular involvement in the business and is aware of the fact that you’re looking for an acquisition in the first place. They can help provide some key structural ideas on the transaction, whether it’s, if it’s an asset transaction or a stock transaction for example. They’re often very good reasons to do one or the other and those kinds of fundamental negotiations tend to happen very early if you’re going to merge versus buy assets versus acquire stock. That’s usually one of the first things that you talk about with price maybe being an important second. And the number that you pay is a business decision, but when you pay, how it’s structured and what right or ability you have to reduce the purchase price because of something that might happen or go wrong in the transaction is just often as important from legal standpoint as it is from a business standpoint.
And so, we try to help structure the transaction in a way that protects the client’s interest even if the deal’s already under negotiation and underway. And sometimes that puts us in the uncomfortable position of coming in and changing the deal at the last minute. That’s why engaging early before the structure’s set, before agreements are signed, before the parties have really started negotiating the business terms. Because everything from nondisclosure of proprietary or confidential information to what the purchase price is and how it’s paid, can be important terms that matter later. And when they’re agreed on early on, they tend to stick around and are hard to change after the fact, even if we discover something that really requires a change or that makes the deal no longer as attractive as we find out more about the company.
Dave: One of the things, and I’ve had an opportunity to work with you through the Rea Board of Directors on a transaction, and I remember you stating as we looked at a transaction, “These items were nonnegotiable and these others one’s we could work through”, and I suppose getting your firm or your attorney involved early gives you the luxury to take a look at those type of things.
Chris: Absolutely, and the kinds of things that are typically nonnegotiable are, if you’re going to acquire a company, you want to make sure you get good title to whatever it is that you’re buying. Whether it’s real estate, equipment for manufacturing, clients and a service business, whatever it is that that company has value to you, you want to make sure you can realize that value after the transaction. And so the things that tend to be nonnegotiable are things that are fundamental to the value. Getting the title of the assets is one, having things like representations and warranties and indemnification is another concept that needs to be present in the deal exactly how it’s structured, what the numbers are and how flexible they are. Those are things that you negotiate.
And so you can have concepts that are required or necessary in virtually any kind of business transaction, whether it’s an acquisition or some other agreement. But, I try to stay focused on those things that are really, really, really important, either because I know they’re important to my client or because from a legal standpoint they tend to be the places where business deals go sour. And focus on those first and make sure we get those right, and we leave the other things a little more flexible so the business parties are happy with the deal that they strike.
And it tends to be, in acquisition context, a pretty collaborative process. Most folks are engaging in those transactions voluntarily. It’s sometimes the case that a particularly a seller may be forced to seller, whether it’s because of the death of a founder or because of the bank or because of economic pressure, regulatory pressure. There could be lots of reasons that people aren’t motivated, but at the end of the day, the deal still tends to be cooperative. And so building value together and finding a way to make the deal work so that it benefits both parties is I think essential to getting the structure right. And hitting those nonnegotiable terms early and making sure that we can live with them is one of the key ways to make sure the whole deal from start to finish goes smoothly.
Dave: Well too, involving the lawyer early, especially with your firm, allows you to align the bench, get the bench in place so you can assist a client.
Chris: I think that’s a great point. And, we’ve talked about acquisitions but in virtually any kind of business transaction, you often have particular industry or subject matter issues that you may need some specialized help. And that’s not different than any other profession. Why have partners and other folks who work in my office who handle things like worker’s compensation and employment matters that is not a particular area of focus for me.
But every business that you, that your buyer has employees and has benefits. And so those benefit issues have been something that I actually have had to get a little smarter on over the years because everybody has a qualified retirement plan, everybody has some form of health insurance, whether it’s a plan or reimbursement arrangement or something else. And so having somebody who is knowledgeable about those items is important if you’re gonna do a total business acquisition. But they also probably have real estate and they also probably have bad debt and you may have to involve a litigator to help handle something that’s a current dispute.
And so, they’re different areas of practice for lots of good reasons and engaging the right team is essential to being efficient for the client. Trying to do everything yourself and trying to be an expert in all things is not generally a great strategy. That’s why we work as a firm so that we can have the right people on the bench and build a team for each transaction that is custom fit to solve the needs that we anticipate having in that deal.
Dave: You had mentioned earlier in the introduction that you may meet or see your clients maybe every six months, maybe a year, maybe every two years. Ideally, as a business owner, how often should I sit down with council and just talk about business items and how things have changed? What’s your recommendation?
Chris: Well, my dad and my brother are optometrists and my mom and my sisters are dental hygienists and in keeping with their practices I’d like to say at least annually and twice a year would be better for your business health.
I’d love to tell you more often than that, but the reality is most businesses run on a day to day level with owner or board involvement and a lot of the issues that they handle are strategic and specific to their business and not necessarily long term or legal in nature. We don’t need to be interfering in those things at all.
But, what also typically happens is if you don’t at least on an annual basis do some kind of a check up, make sure you have the right officers appointed so that if you ever need to demonstrate authority, you can talk to your bank or another party you’re entering into an agreement with that yes, this person actually is the president of my company or this person is the vice president of operations and they have signing authority. Naming the officers, making sure that you have approved whatever it is, a change in a banking relationship, making sure that you have approved signing a long term contract that has a particular capital expenditure requirement or a deal of a certain size, making sure you have your authority structured right so that your board or your officers don’t act in a way that exceeds their authority.
Those are touchpoints that every business has on an annual basis. It’s good to review. Sometimes it’s as simple as everything we did last year is still good this year. And often it’s an entire change of management or it’s the addition or elimination of restrictions on authority, and those are the kinds of things that a lawyer can help make sure you have at least the right safeguards in place. Particularly as your business grows and you have more and more decentralized effort, it’s more important to both authorize the company and its officers and agents to be doing the right things and to have safeguards in place to make sure that those ideas and those guidelines are followed and not exceeded.
Dave: Yeah and you mentioned, and we’ve seen this in our practice with our clients, the old fashioned minute book has kinda gone by the wayside. Companies just aren’t keeping up with the minutes, and like you said, who’s the officer and who’s the check signers and all of that jazz.
Chris: That’s right. That’s right and those things tend to get old and they tend to get outdated quickly and it’s a frequent problem that we see. And I think a lot of it has to do with the fact that most people year in and year out have things mostly the same and so they tend to change in small ways incrementally and when you look back over a 10 year period you realize we’re very far from where we were 10 years ago, but no particular year seemed to really move away from where we used to be. And so I think that regular touchpoint is a good way to make sure you’re being mindful of which direction you’re headed.
The other thing I would say is those minute books are really important for lots of reasons. Most people think of them as being internal documents, but, as I think everyone will attest, if you’ve ever been audited by the IRS or if they, if the DOL wants to look at your retirement plan, one of the very first things that virtually every person, regulatory or otherwise, is gonna come on sight and ask for are your records. From an audit standpoint, if you don’t have minutes, if you don’t have a piece of paper that demonstrates what you did, it didn’t happen. And I think it’s important that businesses be mindful of protecting themselves in the future as well as being good stewards of their assets and their business operations year in and year out.
Dave: Sure. Sure. Did we forget to mention to you at the beginning of this that you’re gonna be on a YouTube video and did we get the right waiver?
Chris: So far I’ve signed nothing which I think is mere right of revocation over all of the publication rights.
Dave: What the hell does that mean?
Chris: Exactly. That’s why you hire a lawyer because we use words that nobody knows what they mean just so somebody else has to go hire a lawyer. It’s basically job security. I see the camera, I figured it was recording, I’m glad to see that the podcast is expanding. I feel, to borrow a term form our radio friends, that first time, long time. And so I’ve been watching you guys do this for a long time and I think it’s great that you internally produce podcasts and reach out to your clients in lots of specific ways. It’s been interesting to hear the personalities of both you team members and other folks and guests and I’m honored to be I think the first attorney we’ve had on here, at least who’s actively practicing law so, I appreciate the invite and…
Dave: We’re not gonna get billed for this appearance, are we?
Chris: Oh.
Dave: That’s a…
Chris: I’ll let you know at the end of the month.
Dave: So yeah, it … we’re gonna send the YouTube video to all 50 of your associates and many of your clients so they get to see you in person.
Chris: That’s great. As long as it’s the production version, I think that’s great.
Dave: That’s good?
Chris: Yeah. It’s good.
Dave: You had mentioned earlier about doing some legal work and this is just out of curiosity, but mentioned doing some legal work for family members. So you do the work for … legal work for some of your family members?
Chris: I do. And like all good firms we have a policy on that. I have to disclose when I do things for my family at a free or a reduced rate. But I have the flexibility to make those decisions at my firm and I’m proud to support my family and their endeavors and they have legal needs just like everybody else. Tends to be estate planning or handling small disputes for my family and some business planning as well.
Dave: And they don’t like your fee either, do they?
Chris: They really don’t and I hear about that a lot. I think one of the most interesting economies that tends to get overlooked though is the barter economy. And we tend to do a little bit more horse trading in my family I think than others because of that.
Dave: Great. Great. One of the things I want to dive into in the time we have left is trying to understand how your lawyer thinks and I think you shared a lot of that earlier in the podcast, but how do you think as you take on a case or a contract or a transaction?
Chris: So I think one of the things that lawyers are trained to do is to think through permutations and to consider what the most likely outcomes are and where the friction points are gonna be. So that’s sort of three different things that I’ll try to break down quickly.
The first thing is how do we get out of the contract? I think that’s one of the first things that every lawyer looks at, whatever it is. An NDA, a business acquisition agreement, a real estate lease, a long term copier contract, it doesn’t matter. How do I get out? Because the way you exit the contract and how much it costs you to do that has a significant bearing on what, how important some of the other terms are. You may have a 100 year lease, but if you can get out on 90 days notice, 100 years may not be such a big commitment. And that flexibility is one of the ways in which lawyers tend to focus on where can I push and pull on this document to make it give me the outcome that I want and that’s how you can be flexible on some of the terms. I can give on a particular term that I might not like because I can either, I can determinate the contract or otherwise exit it with low barrier and that’s an example of how lawyers tend to analyze.
Notice that none of the things that I said relate to the business terms. It’s not about how much. It’s not necessarily about how long or what services are provided or how good they are or whether one contract party is an industry leader in whatever it is that they’re doing. It tends to be more structural in nature. And having that other viewpoint in the room is one of the reasons why involving somebody early can be helpful, because not only do they look at things maybe a little differently than a business person would, but also we got the opportunity to see a real estate lease over and over and over again. Virtually every company signs real estate lease at some point in their operations, but they may only sign one or two for 20 years. Well, I probably reviewed 20 this year already. And so what other people are doing, how the industry is moving, and how the friction points are likely to arise help guide me in giving advice to people to be mindful of where they’re likely to have problems and how we can successfully navigate the entire relationship with a contract, whatever it is.
Dave: Good. I may have you take a look at my podcast contract and the royalties I’m being paid. We’ll split any of the increase that you can get. We’ll give you a spiff on that.
Chris: I’d love it.
Dave: As we define success on a project, and I know you’re very competitive, I know you’re a single digit handicapped golfer. Do you have to win every case? Is that you? Is that Chris Pycraft? Do you have to win?
Chris: I hesitate because I’d like for the answer to that to be no, but I think the answer probably for me is yes, and that’s the key though, right? Is to finding what winning is. It’s not necessarily the case that a negotiation or a transaction or a contract has a winner and loser. It’s more about defining what is successful. What is the outcome. And so sometimes when people call their lawyer they’ll say, “I have this contract I want you to review.” Well what is the successful legal service there? Is it reviewing and providing advice? Is it returning a red line document? Is there a deliverable?
Sometimes, and I think my best clients are the best at this, clients will call because they want my viewpoint and they want to include that in their analysis and make their own decision. And those folks are great to work with because they’re thoughtful and they value the prospective of others and they will talk to their other professionals as well, gather all that information, and make an informed decision. And that is one of the ways in which I think my favorite clients are great at working with our office. They involve us early, they understand how we think, and they value our advice but they make their own decision. And that’s a really engaging client to work with.
Dave: Fantastic. Great advice today as we kinda recap. You’ve covered, gave us some great advice on how to involve your lawyer, understanding how you think, and I know many of us think, “What the heck do attorneys think about?” But you’ve done a nice job of identifying that and also defining success for the project. And so appreciate your input. Our guest today has been Chris Pycraft from Critchfield, Critchfield & Johnston from Wooster, Ohio. And again, thanks again for joining us on unsuitable Chris. You really touched on some great tips that will help our listeners get more from their relationship with their council.
If you have additional questions or would like to get in touch with Chris, just shoot an email to podcast@reacpa.com. There’s some great articles on our website at www.reacpa.com/podcast and we’re excited to announce that we are now offering a behind the scenes look at unsuitable on Rea Radio on the Rea and Associates YouTube channel. Check it out, and while you’re there go ahead an click subscribe and we’ll make sure you get the YouTube on a weekly, monthly basis. And don’t forget to subscribe to unsuitable on iTunes.
Until next time, I’m Dave Cain encouraging you to loosen up your tie and think outside the box.