Lawyer | Helping entrepreneurs buy, grow, and sell main street businesses | Building a modern law firm at 7th Street Legal

I help acquisition entrepreneurs buy, grow, and sell small businesses.

In the past, you’ve had limited options. Large law firms cost too much money. Small town lawyers lack the experience. 

I founded 7th Street Legal to provide you with an alternative: Premium legal services, predictable pricing, a law firm designed for you.

Before founding 7th Street Legal, I worked in private practice, representing some of the biggest companies in the world. But equally important, I’ve spent years working exclusively with main street entrepreneurs.

Here's one rule I always advise you to follow.
It will save you money in the long-run.
 
Complete financial diligence first.
 
Why?
 
Businesses are usually valued at a multiple of EBITDA or SDE.
 
Financial diligence—in particular, a Quality of Earnings—is your first real opportunity to scrutinize EBITDA / SDE.

And if your QoE suggests that EBITDA / SDE should be revised down, you’ll have grounds to re-trade on purchase price.

But the seller, having already agreed to the purchase price in the LOI, may resist. And if so, the deal will fall apart.
 
Accordingly, you should avoid accruing meaningful legal fees until it looks like you're past this point. 

Efficiency favors financial diligence first.
 
Sometimes, in the rush to close, the buyer will start legal and financial workstreams at the same time.
 
The circumstances may force your hand and make this unavoidable. But whenever possible, try and avoid it. 

Rushing through QoE is rarely a good idea.

It's your first line of defense.

(This coming from a lawyer)

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Hal Stanton

And we’re back. 
Happy new year! Happy 2026!

I spent part of the holidays “up north.”

That’s what us Michiganders (even adopted Michiganders like me) call upstate Michigan.

It was snowy. Seriously snowy. Over a foot fell in the few days that we were there.

On the plus side, that led to great adventures with my son.

Snowmen were built.

Snowballs were thrown.

It may have been cold. But we had fun.

How did you spend your holidays?

When it comes to main street M&A, here's the truth:


From a legal perspective, purchasing a small business isn’t that complicated.

And, in general, that's a good thing.
 
If it were as difficult as acquiring a Fortune 500 company, few deals would ever get done.
 
Yet don't equate relative simplicity with the absence of material risk.
 
Purchasing a small business is exceptionally risky.
 
It will likely be the single largest transaction of your life.
 
And a personal guarantee on a multimillion-dollar loan is a serious matter--the failure of your business post close will almost certainly lead to financial hardship.
 
And while out and out failure may be relatively uncommon, your outcome may be neither success nor failure but purgatory.
 
Stuck operating a business you struggle to grow; left in a grinding job with the added stress of making payroll.
 
So do yourself a favor, insert a heathy does of pessimism into your financial modeling.
 
And hire suitable advisors to help guide you through the M&A process—preferably, advisors who have experience closing the types of deal you want to do.
 
Your advisors can’t protect you from every conceivable risk. Risk comes with the territory.
 
But they can protect your interests to the extent possible, leaving you to focus on the hard work of operating the business post close. 

As always:

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I help entrepreneurs buy and sell businesses, and write about it both here and on SMB-Transactions.com. Sign up for my newsletter to receive your bimonthly guide to entrepreneurship through acquisition, and join a growing community of searchers looking to acquire businesses and take control over their professional careers.

Looking to partner with a lawyer on you next SMB transaction? Groundswell Advisors, LLP, is dedicated to helping people like you buy and sell businesses between $1MM and $10MM in enterprise value. Reach out at hal@groundswell.law, and let's discuss your deal. I look forward to working with you.

Deal lawyers often position themselves as hard-nosed negotiators. Is this a good thing?

After all, buyer and seller generally want the same thing.

They want to close on the terms agreed in the Letter of Intent. Nothing more.

So if a lawyer feels the need to take an aggressive posture regardless of the circumstances, it could do more harm than good.

Just to be clear, there are reasons to get heated. For example, if the other party demonstrates a lack of good faith.

That’s understandable. No one likes the feeling of getting played.

But often that's not the case. And aggression-first in the main street context is usually the wrong choice.

This is because the buyer and the seller the buyer and the seller have an unusual relationship.

Prior to closing, they have divergent interests. Each one wants to secure the best terms while minimizing risk.

But post-close, thanks to structuring tools like seller financing, their interests should align. 

Both want to see the business successfully transitioned and succeed.

The buyer and the seller therefore need to become quasi partners. And poisoning the well at the negotiating table is not a good idea.

Let's be honest, even if this were not true, brute force is still a poor choice.

It can work against weak counterparties. But against most it’s a turnoff. 

See how brow beating a 60-year-old retiring veteran who grew his manufacturing business from scratch works for you...

So when you’re looking for a lawyer to help you buy a business, make sure you hire one who is focused on problem solving rather than fighting.

Because when it comes to main street M&A, lawyering with quiet confidence is often the better way.

As always:

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Do asset purchases always insulate you from inherited liabilities?

Despite some blog posts to the contrary, the answer is: no, there are exceptions. 

And one such exception involves 𝗯𝘂𝗹𝗸 𝘀𝗮𝗹𝗲𝘀 𝗹𝗮𝘄𝘀.
 
Traditionally, these laws were designed to protect creditors in the event that a business sells its assets.

These laws required the business to notify its creditors of the proposed sale, giving the creditors a chance to take action.
 
The concern was that a nefarious business owner could transfer the assets of her business to a new legal entity in an attempt to avoid paying her creditors.
 
And, accordingly, the failure to notify creditors usually meant that the buyer would become liable for those debts as a successor in interest.
 
However, the traditional rule and rationale has become more complex.  

For example, in some states, bulk sales laws have little to do with creditors. Instead, the focus is on local taxes.
 
In those jurisdictions, the business has to obtain a certificate from the local taxing authorities stating that no taxes are owed. 

Otherwise, again, the buyer can become liable as a successor in interest.
 
What's more, some states have abolished their bulk sales laws. But not all.
 
And some states have abolished their bulk sale laws but retained the tax clearance requirement.

So, when purchasing a business, you need to understand what laws apply and what they demand from you in terms of compliance.
 
But don't worry. You don't have to memorize this post of go off and do a bunch of research.
 
Instead, you need to work with a lawyer who understands what laws apply and what actions you need to take to protect yourself. 

Something about traps for the unwary...

As always:

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I regularly speak with prospective buyers.
Here is one thing they often ask me:
 
Are you a problem solver?
 
I get where they are coming from.
 
Some lawyers are negative.
 
They see problems and stop there.
 
• You can’t invest in that company.
• You can’t close that deal.
• You can’t, you can’t, you can’t.
 
And, just to be clear, “you can’t” is sometimes sage advice.
 
Some problems are red flags. There are reasons to walk away.
 
But, truth be told, there are solutions to most issues. Transactions are, after all, negotiations. Nothing more.
 
Don’t surround yourself with the “No” Department.
 
Look for lawyers who see themselves as risk assessors.
 
Lawyers who want to make you aware of the risks and work out how best to mitigate them.
 
Lawyers focused on closing (not killing) the types of deal you want to do.
 
A little negativity can be a good thing, a lot not so much. 
 
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Some promote business buying as a path to wealth.
But here’s one thing you should know:
 
Buying a business involves risk.

A lot of risk.
 
You can do all the diligence you want. Small businesses are informal affairs. Hidden skeletons may still exist.
 
You can do a lot to protect yourself. You can allocate liabilities in the purchase agreement accordingly and have the seller indemnify you for related losses.
 
But these protections will only get you so far.
 
There is only so much your lawyer can do.
 
And if the worst happens and the business fails, you’re the one holding a personal guaranty on the SBA loan.
 
The fact is you have to have a certain risk appetite to pursue these deals.
 
The rewards are there.
 
But it’s not for everyone.
 
And that’s the truth.

As always:

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Non-competes are crucial in main street deals.
So let's bust some myths.

- Non-competes are hard to enforce. 
- I don't need one, as the seller is retiring.

Both are untrue.

A non-compete protects your new investment by preventing the seller from using industry knowledge and customer relationships to create a rival business.

They are enforceable so long as reasonable.

And even if the seller is retiring, you still need one.

Otherwise, the seller could assist a rival business (like a rival operated by his or her nephew).

Accordingly, negotiating a non-compete is one of the most important parts of the business buying process.

Because you don't want your newly acquired clients to have another option, particularly one that they know and trust.
 
Do not let the seller destroy the goodwill you’ve just purchased.

Non-competes are standard in main street M&A for a reason.
 
If a seller pushes back against a non-compete, it’s generally a red flag.

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Understand this LOI concept and you'll be ahead of many influencers...

I was once on a WhatsApp group dedicated to business buying.

Letters of Intent (LOIs) were under discussion. A member was thinking about skipping an LOI and moving straight to the purchase agreement.

Someone agreed. In his view, LOIs didn't matter. After all, he'd learned that LOIs were nonbinding.

Yet this is a common misconception. It's a half truth espoused by those with less than a full understanding.
 
The full truth is, while much of an LOI is non-binding, some provisions are (or, at least, should be) 100% binding.
 
And perhaps most importantly that includes exclusivity.
 
Exclusivity prevents the seller from entertaining other offers while you conduct diligence.
 
It creates a safe space for you to negotiate a purchase agreement without having to worry about competition.
 
That’s why some form of binding exclusivity provision should always be included in your LOI. 

Its also why you should generally avoid skipping the LOI even if you and the seller believe you are ready to move forward with a purchase agreement 

The same is true even when the seller's broker is pushing you to skip the LOI and move forward with a purchase agreement.  
 
As the buyer, you want the seller to take the business off the market and commit to dealing only with you. It's a non-negotiable.

As always:

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Yesterday, I wrote about F-reorganizations.
Are they SBA compliant?

Until recently, I would have answered yes with 100% certainty.

But I am currently working on a deal where my faith is being tested.

The lender has questioned whether the proposed F-reorganization is SBA compliant.

At the same time, I am working on two other deals where the lender has blessed the F-reorganizations as a matter of established practice.

Here in lies a problem: Lenders interpret the SBA's SOPs differently.

This has always been the case. And it highlights the need to work with several lenders (at least initially) in order to get the best deal done.

As for F-reorgs, I continue to hold that they are SBA compliant and will remain a valuable structuring tool. That is, unless the SBA revises the SOPs to explicitly prohibit their use.

But why would they? 

F-reorgs generally benefit the buyer from a risk and reward perspective. 

They make it more likely that a buyer will succeed post close. 

And isn't that what the SBA wants?

As always:

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Asking this one question early in diligence will save you legal fees in the long-run:

𝗗𝗼𝗲𝘀 𝘁𝗵𝗲 𝗯𝘂𝘀𝗶𝗻𝗲𝘀𝘀 𝗵𝗮𝘃𝗲 𝗮𝗻𝘆 𝗱𝗲𝗯𝘁𝘀 𝘁𝗵𝗮𝘁 𝗻𝗲𝗲𝗱 𝘁𝗼 𝗯𝗲 𝗰𝗹𝗲𝗮𝗿𝗲𝗱?

Why is this so important to understand early?

If exiting creditors have liens on the assets (i.e., the debts are secured), your SBA lender will require that those debts are paid prior to closing.

This is because your lender wants priority position on the assets of the business.

Yet sometimes, a seller doesn't realize this and is poorly advised. he therefore proceeds under the mistaken belief that the buyer will assume the debts at the closing.

That is, the seller believes that he will receive 100% of the proceeds from the sale and will walk away from the debts; the debts will become buyer's problem.

But this is not what will happen. 

If there are existing debts on the books, either the seller will have to pay them off prior to the closing or your lender will want to pay them off at closing with the seller’s proceeds.

And if this issue comes up late in the day, it could threaten the deal, despite the fact that both parties have invest money in lawyers to negotiate the transaction documents. 

So ask about debts early. You don't need a lawyer to do so. It is a simple issue to understanding and discuss with the seller.

Doing so will save you dead deal fees.

And As a lawyer, I’ve learned one thing: Nobody likes paying dead deal fees. 

As always:

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All too often, I still see first-time buyers making this mistake.

As a result of last year's changes to SBA SOP 50 10, they believe that the SBA requires seller notes to be on standby for the full term of the SBA loan.
 
To clarify:

If you want the seller note to count towards your 10% equity injection, then yes, it has to be on full standby for the term of the loan (often 10 years).
 
But if you’re getting your equity injection from elsewhere (e.g., personal funds or investor capital), a seller note doesn’t have to be on standby at all.

That doesn't mean you don't want your seller note on standby. Seller notes are regularly on full or partial standby for the first two years to ease the transition from seller to buyer.

But don't spook the seller unnecessarily, as asking him or her to defer a portion of the purchase price for 10 years is a big ask.
 
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New to the ETA space?
Coming across the term F-reorg?
Want to know what that is?
 
F reorganizations are an established play.
 
In technical terms, they are a mere change in identity, form, or place of organization of a corporation.
 
In main street M&A terms, F-reorganizations transform S-corporations into single member LLCs ahead of a stock acquisition.
 
But why do this?
 
- It results in asset purchase treatment for tax purposes.
- It protects against the risk of an invalidated S-election.
 
F-reorgs are particularly useful if you are going to rely on investor capital to close your deal.
 
Why?

Investors usually invest through legal entities (often partnerships for tax purposes). And even if that were not the case, investors want preferred equity treatment.
 
And yet:

- Only individuals can own equity in an S-corporation (with some exceptions).
- S-corporations can only issue one class of stock (i.e., no preferred equity).
 
So, if you’re looking to purchase an S-corporation and want to take on investors, an F-reorganization is almost certainly in your future.
 
Still confused?

As always:

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Every now and again, I see this issue.
Hopefully, I see it in time to intervene.

The buyer isn't proposing a meaningful seller note.

This is a mistake as seller notes play an important role in main street M&A.

Why?

It's about aligning economic incentives:
 
• The seller is more likely to see the note repaid if he or she ensures a successful transition of ownership.
• Negotiating an offset right gives you the means to deduct indemnified losses from the amount owed.
 
Seller notes are also a useful tool to bridge valuation gaps, particularly if a portion of the note is forgivable based on business performance (earnouts aren't permitted in SBA funded deals).

Seller notes have only increased in importance since last year; the SBA placed restrictions on sellers retaining equity.

Sellers now have to guarantee the SBA loan for two years when retaining equity, making this scenario less and less common.

In main street M&A, seller notes have always formed a part of the capital stack.
 
And seller notes will remain a crucial structuring tool.

Take heed.

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Here's how to approach working capital when buying a small business:

Working capital is a measure of short-term liquidity. It is equal to a business's current assets minus its current liabilities.

Current assets? Think cash, accounts receivable, and inventory.

Current liabilities? Think accounts payable and other operating expenses.

At close, you have to make sure that the business has sufficient working capital. Otherwise, you’ll face difficulties paying creditors. 

You may even have to inject additional capital to fund operations (or face insolvency).

How do you guarantee sufficient working capital at close?

- Bring your own working capital to the deal.
- Negotiate a working capital adjustment.

Bringing your own working capital is common on smaller deals. 

In effect, you’re excluding working capital from the transaction and replacing it with a line of credit.

But sometimes excluding working capital isn’t practical.

There could be significant work in progress, making it necessary to address inventory, accounts receivable, and accounts payable.

You may not be able to secure a sufficient line of credit.

In either case, you’ll need to include a working capital adjustment, where the purchase price is adjusted for a normalized level of working capital—the level of working capital that the business has historically needed to operate.

This is referred to as the “peg.”

- If the business is delivered with less working capital than the peg, the purchase price is reduced. 
- If the business is delivered with more working capital than the peg, the purchase price is increased.

Start discussing working capital with the seller as soon as possible, as it is often the most misunderstood aspect of any deal.

Sellers sometimes see it as a money grab. In their view, they’ve earned that money. The thought of leaving it behind at close has never occurred to them.

And that kind of disconnect can kill a deal if raised late in the day. So raise it early.

As always:

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Here’s how to think about key employee risk in the main street M&A context:

When it comes to making sure that key employees stay with the company post-close, you have two options: the carrot and the stick.
 
The carrot is by far the better choice. A happy employee is, after all, a loyal employee. 
 
Moreover, carrots come in many different varietals--you have options:
 
- Salary
- Bonuses
- Benefits
- Equity
 
Depending on the type of employee, strong base compensation and benefits may be sufficient.
 
And if an employee is particularly mission critical, a grant of restricted equity that vests over time adds something more—it aligns employer-employee interests.
 
But what about the stick?
 
The stick comes in one form—the non-compete (and its twin the non-solicitation).
 
In essence, you’re threatening the employee with a lawsuit.
 
“If you leave my company and ply your trade elsewhere, I will come for you.” 
 
But non-competes aren’t always available. Unlike non-competes in the sale of a business context (where they are critical), employer-employee non-competes are heavily regulated and, in some states, outright prohibited.
 
And if a non-compete is all that is stopping someone from leaving, you’re unlikely to see the best of that employee. 
 
That is not to say that non-competes have no place in employee retention.
 
If the employee could destroy the goodwill of your business—by, for example, setting up a competing business--a non-compete, where permitted, is a useful tool.
 
But let’s be clear, no one likes working under the threat of a stick.
 
And however you decide to proceed, you can’t get around an essential element of human nature.
 
You can’t nail employees to the office floor; they’re humans, and inherently mobile.
 
Written employment agreements be damned. If someone has to leave—perhaps due to a family issue—they may well decide to do so.
 
So here’s the real panacea to key employee risk in an M&A transaction: Redundancy.
 
Systems and processes, followed by all, make it less likely that any single employee can hold your business hostage.

As always:

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