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Jan 17 2014

How a Small Business Can Lower and Control Legal Fees

At the risk of striking fear into the hearts of my fellow lawyers, I want to write about how businesses, particularly small and growing companies can lower and control their legal fees. While these tips are applicable to individuals and larger businesses, small businesses usually are the most affected by a sudden need to spend significant money on legal fees. More mature, larger corporations know that legal fees are to be expected and they budget and plan accordingly. So small business owners need tools and mechanisms to help keep a lid on legal fees when they face a situation where they require legal advice. This is a collection of some of the advice I have given to my small business clients over the years. They are in no particular order:

1.  Get educated.  Ok, so actually this is the most important.  Before calling a lawyer, spend some time researching your issue on the internet or in your local library (if you remember where it is).  While it is difficult to put too much faith in things you read online (this blog excepted of course) after scanning several websites on your legal topic, you will usually be able to get a feel for what the principal issues are and what commons problems are faced.  It is important to have some working knowledge of what lies ahead. This will also cut down on the time your lawyer has to spend with you initially to get you up to speed and will help you begin to gather the documents and informatin you might need for the lawyer to review.

2.  Shop around -Meet and interview several lawyers.  Yes, it is always best to try and get  referrals from people you trust, but you should still speak to a few lawyers before you choose one to represent you. Most lawyers do not charge for the initial consultation and those that do, charge a nominal fee. The rest of this list will tell you what are some of the things you should be talking about in your initial interview.  Make sure you and your lawyer are on the same page about your goals, budget and expectations. Check the lawyers out, either through an internet search or ask them for client references.

3. Money talks, so talk  money. Do not be shy to talk directly about legal fees.  Get a written retainer agreement. Many firms offer start-ups an introductory rate lower than their standard rate for the first six months or a year. In addition to fees, there are costs as well. Request that you have to approve any expense over a certain amount before it is spent (say $250). Try and put a figure on what your legal issue is “worth”; its value to your company and if litigation is involved what amount is truly at stake. That will help you gauge the appropriate budget (point 4 below).

4. Ask for an estimate and/or budget. While it is often difficult to predict the course of a legal problem, if your lawyer has dealt with the same kind of problem before, then he/she should be able to give you an educated guess as to the anticipated legal fees and costs. With that estimate in hand, you can prepare a budget and demand that your lawyer stay within it and advise you when you are getting near the top end of the budget.  Most problems can be broken up into “stages” and you should get a budget for each stage. If the matter is in litigation, have your lawyer draft a litigation budget so that you can see how much money will be needed and when it will be needed in order to better control your cash flow.

ILoveLawyers5. Set “Truth in Billing” guidelines. Who said that the smallest billing increment is 15 minutes? If you are on the phone with your lawyer for 20 minutes, you should be charged for 20 minutes, not a half hour. I call this principle “Truth in Billing.”  Charging you for 15 minutes when you only talked 5 is inappropriate.  Ask for monthly invoices so you can keep track of costs. You may not want to see legal bills all the time, but getting hit with a quarterly bill can lead to sticker-shock and could be prevented by being billed regularly. Agree to allow paralegals to do those things that lawyers do not have to do themselves and make sure you negotiate a reasonable rate for their services.

6. Get your hands dirty By that I mean, do some of the work yourself.Have a set of copies of the relevant documents already prepared and organized or have them scanned on a flash drive or disc; same with emails if part of your proof is contained in emails. Make a thorough examination of all the material you have and arrange it in an organized fashion. And I mean ALL material – the good, the bad and the ugly. Holding back information or documents only derails your lawyer’s ability to provide meaningful assistance to you and will cost you money in the long run.

7. Get legal advice as early on as possible
If you are thinking about starting a business venture, getting solid legal advice at the outset will help save you money in the long term. Have a written operating agreement if you have a business partner even if its a family member (actually especially if its a family member). Properly incorporating your business and creating a protectable, trademarkable, logo and brand name will avoid headaches down the road. Make sure you are familiar with all local, State and Federal rules (including taxes) that may impact or regulate your business. If you are going to have employees, have an employee manual prepared and familiarize yourself with workplace rules including labor law, wage and hour rules and required posters and forms. Other questions for start-ups that a lawyer can help with include: What kind and how much insurance do I need? How should I pay myself? What if I want to take on a partner down the road? Spending a little money in the beginning to start right will save you lots of money later on by avoiding legal problems. If you have been served with litigation, don’t wait – get legal counsel right away and start putting together the necessary documents as described above. Putting your lawyer’s back to the wall by not giving him enough time to address the problem will drive up legal costs as he may have to have additional lawyers assist in getting things done under a tight deadline.

8. Think before you call While communication is critical in a lawyer-client relationship, before you call write down what you want to talk about and address in the conversation. If the lawyer said you should hear from the court by Friday, don’t call him on Tuesday, Wednesday and Thursday to “check-in.” You are only adding time onto your bill unnecessarily. An email is also better and less expensive than a phone call usually. Being organized before you call will make the call more successful and cost-worthy.

9. Be properly insured Paying for insurance is kind of like paying for a new roof on your house. It’s not a “sexy” expense that gives you an immediate reward and you don’t really feel the need for it until disaster strikes. I am amazed at how many businesses forego the expense of proper and sufficient insurance coverage. A good business policy will also provide free legal representation should a claim come in. All you need is one claim to come in while you are uninsured to eat up every dollar and more that you would have spent on premiums.

10. Maintain proper records and documents Organization is key to many of the points addressed in this article. Many business owners are so involved in the day-to-day operation of the business itself that they just shove all their papers in one big manila envelope or stash some at home, some in their office, some in their car. The few extra minutes it takes to put papers away in an organized file folder or file drawer will save so much time and reduce the risk of you losing an important document or piece of evidence that could make all the difference in the world later on. If you can also scan them and preserve them as pdf files in organized folders all the better.

Hopefully this ten-point checklist will provide an outline for small businesses to help reduce the likelihood of litigation and reduce legal costs. Preparation, planning and organization are the keys to keeping legal fees down and to operating a successful small business.

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