Perhaps the most challenging part of starting up a small business in today's world is controlling the rising fees necessary to handle legal and tax problems that regularly crop up. But are there ways to cut legal fees without exposing yourself to liability? You bet.
"There is no question that the legal marketplace is a buyer's market," says Daniel J. DiLucchio, managing principal at the international legal consulting firm Altman Weil Pensa Inc. in Newtown Square, Pennsylvania. "Most big-city markets are so saturated that law firms must expand their geographic client base. Small-business owners benefit because law firms are more flexible."
Although legal-fee negotiations need not be a confrontational exercise, don't expect your lawyer to suggest ways of keeping the fees under control. "Unfortunately, most law firms are not proactive when it comes to negotiating a competitive fee structure," DiLucchio says. "Usually, the client ends up having to bring the subject of fees into the spotlight."
Here's a 10-step plan to help lower your legal fees without increasing your business's liability:
Step 1: Choose the right lawyer. The key is to match your needs with the skills and resources of an appropriate lawyer. Most small-business owners simply don't need a large, major-city law firm. The overhead expenses of such megafirms are passed on to their clients in the form of high hourly rates. Ask your accountant and fellow entrepreneurs for referrals to find the right lawyer. Be sure to ask any lawyer you are considering about his or her experience with small-business clients.
Step 2: Examine your fee agreement. Once you find a lawyer with whom you feel comfortable, read the fee-agreement letter carefully. Be sure to focus on the following areas of the agreement, which may be negotiable: hourly rates, "hard" costs (postage, photocopying, etc.) and travel time. If you're still in the process of selecting a lawyer, ask your candidates for a sample of their standard fee agreement for your review. Be suspicious of any lawyer that balks at this request.
Step 3: Use paralegals as part of your legal team. James A. Bentley Jr., president of Bentley Graphic Communications in Coventryville, Pennsylvania, says certain legal tasks are straightforward enough that utilizing a paralegal instead of a business lawyer can result in significant savings.
"It's important to use the right person for the right job, and paralegals are more cost efficient, so long as they are supervised by my business lawyer," says Bentley. "When much of my legal work involves organization and preparation of simple documents, hiring paralegals is a smart business decision."
Don't assume your lawyer will automatically suggest this route; be sure to ask him or her about the possibility of using paralegals to avoid paying a high rate for the completion of routine tasks.
Step 4: Do your own footwork. Keeping organized records, indexing volumes of documents and writing out memorandums of facts can reduce your legal fees significantly. Many small-business owners tend to think of such tasks as their "lawyer's job." True enough, since lawyers will do all the footwork necessary--but at their hourly rates, and on your tab.
Step 5: Meet with your lawyer regularly. At first, this may not seem a very effective way to keep your legal fees down, but you'll be amazed at how much it actually reduces both the number of phone calls your attorney has to make and the endless rounds of telephone tag which plague busy entrepreneurs and their lawyers.
"Meeting once a week during a major case is a very effective way to cut your legal bill," says R. Lamar Kilgore, a senior partner in the Malvern, Pennsylvania, law firm Lentz, Cantor, Kilgore & Massey Ltd. "Not only does it cut down on the phone calls, but it gives the client a chance to get his or her thoughts together."
Step 6: Use your attorney as a coach for small legal matters. When you have a customer who owes you money and refuses to pay, do you turn the case over to your lawyer? Some entrepreneurs do, but some handle small legal matters on their own by using their attorney as a coach. Lawyers can be very effective in coaching you to file lawsuits in small-claims court, drafting employment manuals and completing other uncomplicated legal tasks.
Step 7: Demand and examine monthly invoices. While most attorneys are diligent about sending out monthly invoices, some wait until the bill is sufficiently large. If your lawyer doesn't bill in a timely manner, ask for a breakdown of the time spent and costs incurred to date, and for similar monthly invoices to be sent thereafter. When the invoice comes, check the description to be sure you weren't inadvertently billed for work performed for another client.
Step 8: Negotiate prompt-payment discounts. If you're paying a retainer fee, request that your bill be discounted by 10 percent. (A retainer fee is an amount of money that acts as a fee prepayment; any remainder is refunded to the client.)
Even if you don't have a retainer, negotiate a "prompt-payment" discount if you pay your fees within 30 days of your invoice date. You may not get as much of a discount using this method, but even a 5-percent discount on your monthly legal fees can add thousands of dollars per year to your business's bottom line.
Step 9: Cut out impromptu calls to your lawyer. Most business lawyers bill under a structure which includes minimum time increments for repetitive functions such as phone calls. This means when you call your lawyer for a quick question, you'll be subject to a minimum time increment for billing purposes. Consider four impromptu calls a week to your lawyer at a minimum time increment of a quarter hour per call: Even though you only received five minutes worth of advice, you'll get a bill for an hour of your lawyer's time! Instead, keep a list of subjects you need to discuss with your lawyer, and make a single call to discuss them all.
Step 10: Negotiate outcome-based fee arrangements. Although this is a relatively new concept to the legal market, more and more law firms agree to such arrangements in this competitive marketplace. In essence, an "outcome-based" fee arrangement is a risk-sharing plan. Simply put, if your lawyer accomplishes a particular favorable outcome, the bill is adjusted to increase the fees by a preset formula. But if the outcome is not favorable, the final bill is adjusted downward (though not eliminated).