The professional services marketplace is a buyers' market these days. Here are 10 steps to keep your costs in check without hurting your chances of growing:
1. Choose the right professionals. The key is to match your needs with the skills and resources of the provider. Most small-business owners simply don't need a large, major-city law firm or international accountant. The overhead expenses of such megafirms are passed on to their clients in the form of high hourly rates. Instead of a big name, look for small-business expertise.
2. Examine your fee agreement. Once you find a professional with whom you feel comfortable, read the fee agreement letter carefully. Focus on hourly rates, expenses such as postage and photocopying, and travel time. Ask candidates for a sample of their standard fee agreement for your review. Be suspicious of any professional who balks at this request.
3. Use paralegals and bookkeepers as part of your professional team. Certain legal tasks are straightforward enough that utilizing a paralegal instead of a business lawyer can result in significant savings. The same goes for using a bookkeeper instead of an accountant.
4. Do your own footwork. Keeping organized records, indexing volumes of documents and writing out memorandums can reduce your professional fees significantly. Professionals will do all this for you--but at their hourly rates, and on your tab.
5. Meet with your professionals regularly. At first, this may not seem to be a very effective way to keep fees down, but you'll be amazed at how much it actually reduces both the number of phone calls your provider has to make and the endless rounds of telephone tag.
6. Use your attorney as a coach for minor 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 attorneys as coaches. Lawyers can be very effective in coaching you to file lawsuits in small-claims court, draft employment manuals, and complete other uncomplicated legal tasks.
7. Demand and examine monthly invoices. While most professionals are diligent about sending out monthly invoices, some wait until the bill is sufficiently large. If yours 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 work description to be sure you weren't inadvertently billed for work performed for another client.
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 pre-payment; the remainder is refunded to the client.) Even if you didn't pay 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.
9. Don't make impromptu calls to your professional. Most attorneys bill under a structure that 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. For instance, if you place four impromptu calls a week to your professional at a minimum time increment of a quarter-hour per call, you'll get a bill for an hour of your lawyer's time--even though you only received five minutes' worth of advice! Keep a list of subjects you need to discuss, and make a single call to discuss them all.
10. Negotiate outcome-based fee arrangements with attorneys. Although this is a relatively new concept in the legal market, more and more firms agree to such arrangements in this competitive marketplace. 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.)
Writing Professional Service Contracts
Get everything in writing when dealing with professional service providers. Your written agreement should cover the scope of the services to be rendered, the duration of the agreement and the fees. The fee schedule should state whether fees are to be based on an hourly, daily or project rate, and who is responsible for paying expenses. You should consider having fees based at least in part on performance to protect you from having to pay top rates for shoddy work.
Your agreement should also specify who will be performing the work for your company. Some professional services firms have certain people whose primary job it is to solicit business, while others do the actual work. However, you may not want a lower-level attorney or junior accountant working on your project.
Finally, the contract should explain how the agreement can be ended prematurely, typically with some kind of notice to the other party. This will allow you to get out of an unsatisfactory contract without having to pay the full amount.
What's in it for You?
Having access to top legal, accounting and other professional service expertise is essential to your business's long-term health. With these professionals on your side, you can deal effectively with legal, tax and financial issues that might require years of study to master. So instead of trying to do a professional's job, stick to doing what you do best--growing your business.