Have you seen and reviewed all contracts before buying a brokerage?

Succession Planning Conference speaker Eric Walker shares the perils of due diligence

As a speaker at the Succession Planning Conference in Toronto on November 24, Eric Walker, partner with the Cookson Walker Group, will be sharing his experience about some of the most common (and most costly) pitfalls that can arise in the due diligence stage of purchasing a brokerage. In advance of the conference, we asked about some of the main issues he has encountered in his work as a consultant and expert witness in litigations.

Q: What are some of the most common ways that both buyers and sellers of brokerages can lose money in the sale process?

Generally, mistakes occur when key issues are not verified such as the existence of contracts setting out who owns the business. Here a purchaser could pay for accounts and not own them. Then if a purchaser wants to recoup their losses more money must be spent on lawyers and expert witnesses to litigate.

Q: What are the most important documents that brokerage purchasers should be reviewing after they have signed a letter of intent?

Some of the key documents that should be reviewed are producer contracts to verify ownership of accounts, payroll records to determine undisclosed vacation pay and the potential for termination costs and significant client files to assess the risk of retention.

Q: Who suffers the most in these situations and why?

Usually the purchaser loses money because they overpaid for business assets that did not exist or the value of the assets was inflated by the vendor as at the date of close.

Q: What is the foremost rule of thumb you impart to people embarking on the due diligence phase of a brokerage sale?

Always be thorough. Follow a detailed checklist and review all aspects of a brokerage’s operation – administration, sales, management and personnel. Use professional advisors.

To learn more about the Succession Planning Conference or to register today, click here to visit the conference page in the events section of our website.

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