Bottom Line Business Insights : Maryland Business Lawyer & Attorney : Wagonheim Law Firm : Mergers & Acquisitions & Contractual Negotiation

By Guest Blogger: Michael J. Lentz, Esquire

The other day, a friend sent me a mass e-mail containing a document that he had run across on the internet and found funny and/or shocking. Like most of us, I get many of these mass-forwards, and I rarely if ever open them. This one, though, was followed immediately by a personal e-mail to me from the sender, assuring me that I’d be well advised to read the pseudo-spam.

The document was an opinion from the Family Court in Ontario, Canada. In something of a preamble to its opinion, the Court noted that the parties were characterized by “a harmful, high-octane hatred” of each other, and that, as a result, “the likelihood of an amicable resolution is laughable (hatred devours reason); and a satisfactory legal solution is impossible (hatred has no legal remedy).” The judge was of course correct; when emotions run high and litigation becomes intensely personal, the chance of a negotiated resolution becomes tiny. The parties’ animosity almost always condemns them to the time and expense (both emotional and financial) of a trial. Then, when the trial does happen, neither side leaves feeling fully vindicated, no matter who “wins,” because no court is equipped to address emotional and personal issues. A court simply cannot force people to like each other, or even to act like they do. Litigation is expensive and time consuming under the best of circumstances; when driven by personal animus instead of sound business judgment, it becomes even more so, with a substantially reduced chance of producing a satisfactory outcome.

Notwithstanding all of the foregoing, the most significant piece of the opinion for me was the Judge’s character determination, and how he reached it. He reduced the wife’s spousal support award to $1 per month, based largely on vituperative, hateful text messages that she sent to the children about their father. In his opinion, the judge sounded a cautionary note that we would all do well to heed:

Trials [now] typically include reams of text messages between the parties, helpfully laying bare their true characters. Assessing credibility is not nearly as difficult as it was before the use of emails and text messages became prolific.

The judge’s words should ring true, and sound a note of caution, to us all. We now live in an age where it seems that literally everyone carries a smart phone. Text messages and emails, containing photos and video at the option of the sender, can be sent and received in seconds. The technology allows us to remain connected to our world virtually wherever we go, and presents wonderful opportunities to share information. But, it also provides dangerous temptation. Words dashed off innocently but thoughtlessly in a text or e-mail, can (and often do) appear in quite a different light when printed out and presented during a deposition or trial years later.

Remember, as you text, Skype, and e-mail, that you’re creating a record that will certainly exist in some format long after you have stopped thinking about the conversation. The next time you’re confronted with the urge to send a hateful, nasty, or explicit text or e-mail, imagine your reaction at having the text read to you on the witness stand in court. Pause a moment if you’re able to, and perhaps you’ll hit “Delete” instead of “Send.”

Have questions about text messages and court? Leave comments below!

 Michael graduated from Georgetown University Law Center in 1998. After spending five years with large Baltimore firms and three years as a solo and small firm practitioner, Michael joined Wagonheim Law in 2006, where he continues to utilize his extensive experience in commercial, bankruptcy, and appellate litigation to work with companies throughout the mid-Atlantic region.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Perhaps one of the most misunderstood aspects of drafting documents relating to corporate transactions is the function of the documents themselves.  Many business owners believe two widely-held myths: (1) that the contracts signed in connection with a transaction are documents designed to be used in court if and when the deal goes sour, and (2) that in litigation over a contract, it is as least as likely that the jury or judge will find in their opponent’s favor as in the company’s favor. For these reasons, many business owners feel that the cost/benefit analysis when deciding on whether to hire and pay a lawyer to accurately document the transaction comes down clearly on the “costly” side. After all, the reasoning goes, there’s only a 50/50 shot that the company’s interpretation of the contract will prevail in court, so why pay lots of money to a lawyer up front for only a 50/50 shot of recovery later on?

However, corporate transactional documents are less road maps to litigation than they are memorializations of the transaction and guides to performance in the future. If a transactional document is drafted well, it will precisely delineate the responsibilities of each party going forward, and serve as a written reminder of exactly what the parties have agreed to do. This may seem self-evident, but it is surprising how often a poorly drafted or incomplete contract will actually result in confusion or bitter arguments over which party is responsible for what performance and when, all of which can lead to, rather than prevent, litigation.

Whether you conduct business with estimates, proofs, invoices, electronic orders, or purchase orders, you must identify the crucial terms for each transaction and make sure they are contained in a writing signed by the customer. These terms include:

• What each party is supposed to do (or not do)
• When the deadline is for doing it
• What happens if one party doesn’t do what it is supposed to do
• How much you are to be paid
• When you are to be paid
• What happens if you are not paid (e.g., are there interest charges or reimbursement for attorneys’ fees, etc.)
• Who is responsible for payment

In many cases, businesses would do well to develop a “Master Account Agreement” which contains the so-called boilerplate terms which are common to each transaction. These terms would include such things as finance charges, reimbursement for costs of collection, limitations on your company’s liability in case something goes wrong, and where suit must be filed, among other provisions unique to your business. Once the customer signs this Master Account Agreement, each subsequent transaction can be documented by a much more simple purchase order, estimate, or even invoice containing information more specific to that particular matter. Well coordinated documentation will confirm that each transaction is governed by the terms and conditions set forth in the Master Account Agreement.

The decision to examine and reinvent the way a company does business is one of the most important decisions an owner can make. With very few exceptions, the expenditure of some upfront time and money in this effort will save tens, if not hundreds, of thousands of dollars in the years to come.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

There is perhaps no facet of business management that is more critical, yet more intimidating, than financial management. Most business owners would sooner spend a day playing in traffic than trying to read and interpret the confusing array of numbers that make up their company’s balance sheet or income statement. Yet the fact of the matter is that playing in traffic is probably less risky than ignoring the company’s numbers. Being able to interpret a financial statement will enable your company to better plan for its future and efficiently allocate valuable resources. It is also essential because your company should never enter into a major transaction with another company (say, a vendor or a customer) without confirming the other company’s ability to fulfill the contract. That means reviewing and understanding the other entity’s financial statements.

So, what’s the best way to make quick work of financial statements while taking the intimidation factor out of the picture? Simply put, it is understanding certain basic Financial Ratios. Most people have heard of “Earnings per Share” or “Price to Earnings,” which are two of the more common financial ratios regularly discussed on networks such as CNBC and other financial programming. But fewer business owners are familiar with the more obscure (and for most privately held companies, infinitely more useful) financial ratios which measure the four basic attributes of any business:

1. Liquidity: a short-term view of the ability of the company to satisfy its currently maturing obligations
2. Leverage: a longer term view of the use of debt by the company and its ability to service that debt
3. Activity: a measure of the efficiency of the utilization of the company’s resources, such as measures of inventory turnover
4. Profitability: as compared with investment, or profit margins based on sales

What are acceptable ratios in each of these four categories of measurement? Generally, there are no hard and fast rules. Ratios are valuable because of what they can tell you about the current state of your company and the direction it is moving, rather than whether a company is in imminent danger of failure or can coast without another sale for the next two years. In that sense, it is useful to compare ratios over time.

What constitutes an acceptable ratio also depends on a number of outside factors, including (1) the company’s industry, (2) its accounting practices, (3) its goals, and (4) quite simply, what the company’s owners feel are acceptable ratios in light of those goals. Most business owners should have a discussion with their financial advisor or accountant in order to set acceptable ratios within the four attributes described above, and then formulate a plan to adhere to those ratios.  

While many business owners simply slough these matters off onto their accountant, the savvy business owner will understand (and should want to understand) the numbers that make his or her business work. Additionally, and no less important, not understanding the numbers is an invitation to corporate fraud and embezzlement by less than scrupulous company officers, directors and accountants (and believe it or not, these folks are out there).

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Before signing someone else’s contract, every business owner should train his or her staff to S.T.O.P.

Scope of Work

Termination

Other Obligations

Payment Terms

Scope of Work.  What is it you are obligating your business to do by signing the contract? The vast majority of problems on a project can be avoided by a precise and well drafted scope of work.  Alternatively, if the scope of work is vague or contains items for which you do not intend to be held responsible, no amount of verbal assurances or agreements can make up for the problems lying-in-wait as a result of a signed contract containing an imprecise scope of work. Do not sign a contract until you are pleased with and intend to be held to the letter of this provision.

Termination.  What are the circumstances under which each side could get out of the contract? In other words, are the exits clearly marked? Depending upon the duration of the work to be performed under the transaction, this can be one of the most important provisions in the document. Often, one party or another can elect to terminate the agreement if one or more key assumptions are not met. For example, a commercial lease may be amended to provide that the prospective tenant may terminate the agreement if the space is not fully ready for occupancy by a date certain. Similarly, an obligation to perform work may be nullified if the other side fails to provide all necessary materials by an established deadline. In deals gone wrong, termination provisions are often the only way to stop the bleeding. 

Other Obligations.  Contracts often make reference to other documents containing information or terms to be included as part of the parties’ agreement.  As an example, this is typical in the construction industry where an agreement between a subcontractor and the general contractor specifically states that the parties are also to be governed by the terms in the general contractor’s contract with the owner, the project plans and specifications, and other documents such as the General Conditions.  Outside of the construction industry, many standard contracts refer to terms and conditions in so-called master agreements, or even those posted on websites. Make sure you know ALL of the terms of the deal before signing on the bottom line. 

Payment Terms.  This is, of course, where the rubber meets the road. Few questions in business are more important than:

• Who is responsible for paying you?
• How much will you get paid?
• When is payment due?
• What are your rights if payment in full is not received?

Surprisingly, many businesses leave the answers to these questions open to chance.  Contracts often do not clearly identify the actual person or company responsible for payment, and the payment terms are often deliberately vague.  In this case as in no other, two sentences in writing outweigh all the verbal assurance in the world.

• Email This
• Print
• Comments
• Trackbacks
• Share Link