With 11+ years of experience in law enforcement and M&A law, Eric Hsu has represented buyers in over 100 closed deals worth more than $200M. As the founder of Clear Focus Law, he's one of the most sought-after M&A lawyers in the SMB community. 

Buying a business comes with risks. Sellers might misrepresent financials, hide liabilities, or worse—commit outright fraud.

So how do you protect yourself?

Eric Hsu shares his battle-tested 5-step process to safeguard your business acquisitions.

1. Pre-Diligence

Top research methods:

• Online: OpenCorporates for verification, Google for derogatory news, search for liens on Secretary of State websites, review business ratings

• In-person: Mystery shop the business, conduct drive-bys to verify existence

• Advanced: For online businesses, verify Dun & Bradstreet numbers

Success Story: A simple Google search revealed a seller's federal fraud conviction, saving a buyer from disaster.

2. Legal Due-Diligence

• Formation documents: Articles of incorporation, operating agreements, bylaws

• Relationships: Key clients (especially those >10% of revenue), vendors, contracts

• Risk assessment: Background checks, litigation searches, liens

• Compliance: HR policies, insurance, regulations

Critical finding: "About a third of the time, the seller entity is not in good standing - you can't buy assets from a dissolved entity."

3. Deal Structuring

Key protections:

1. Never do all-cash closings - Buyers have ended in bankruptcy when sellers disappeared

2. Use seller notes (10-20%) - Keep sellers invested in your success

3. Consider transition escrows - Release funds only after successful transition

4. Structure around SBA limitations - Use "reverse earnouts" when needed

4. Structuring The Agreements

The Letter of Intent (LOI) is your blueprint. Include:

• Accurate target identification (50% of CIMs have incorrect names)

• Clear purchase terms and payment structure

• What you're buying (stock vs. assets)

• Tax treatment specifications

• Contingencies and working capital provisions

Key insight: Your Purchase Agreement should have 20-30+ representations and warranties. "If it's not in the agreement, you can't hold them to it."

5. Reps and Warranties Insurance

For deals approaching $5M, consider insurance that lets you make claims directly against a policy rather than suing the seller.

Bonus Takeaway

When & How to Hire an M&A Lawyer?

• When: At deal structure/LOI stage and after financial diligence

• Who: Specialists with flat fees, tiered billing for deal breakups, and proven M&A experience

• Cost: Typically 1% of purchase price ($1-10M deals), minimum ~$20,000

Thank you for reading Behind The Acquisition.