Read This Before Hiring a Business Attorney
In their book, Start Your Own Business, the staff of Entrepreneur Media Inc. guides you through the critical steps to starting a business, then supports you in surviving the first three years as a business owner. In this edited excerpt, the authors offer tips on how to find the right attorney for your small business.
As you start off on your business journey, it’s hard to navigate the maze of legal issues facing entrepreneurs these days unless an attorney is an integral part of your team.
When do you need a lawyer? Although the answer depends on your business and your particular circumstances, it’s generally worthwhile to consult one before making any decision that could have legal ramifications. These include setting up a partnership or corporation, checking for compliance with regulations, negotiating loans, obtaining trademarks or patents, preparing buy-sell agreements, assisting with tax planning, drawing up pension plans, reviewing business forms, negotiating and drawing up documents to buy or sell real estate, reviewing employee contracts, exporting or selling products in other states, and collecting bad debts. If something goes wrong, you may need an attorney to stand up for your trademark rights, go to court on an employee dispute or defend you in a product liability lawsuit.
Some entrepreneurs wait until something goes wrong to consult an attorney, but in today’s litigious society, that isn’t the smartest idea. Many entrepreneurs say their relationship with a lawyer is like a marriage—it takes time to develop. That’s why it’s important to lay the groundwork for a good partnership early.
Choosing an Attorney
How do you find the right attorney? Ask for recommendations from business owners in your industry or from professionals such as bankers or accountants you trust. Don’t just get names; ask for the specific strengths and weaknesses of the attorneys they recommend. Then ask your business associates’ attorneys whom they recommend and why. (Attorneys are more likely to be helpful if you phrase the request as “If for some reason I couldn’t use you, who would you recommend and why?”) If you need more prospects, contact your local Bar Association; many of them have referral services.
Next, set up an interview with the top five attorneys you’re considering. Tell them you’re interested in building a long-term relationship, and find out which ones are willing to meet with you for an initial consultation without charging a fee.
At this initial conference, be ready to describe your business and its legal needs. Take note of what the attorney says and does, and look for the following qualities:
- Experience. Although it’s not essential to find an expert in your particular field, it makes sense to look for someone who specializes in small-business problems as opposed to, say, maritime law. Make sure the lawyer is willing to take on small problems; if you’re trying to collect on a small invoice, will the lawyer think it’s worth their time?
- Understanding. You’re looking for someone who'll be a long-term partner in your business’s growth. Sure, you’re a startup today, but does the lawyer understand where you want to be tomorrow and share your vision for the future?
- Ability to communicate. If the lawyer speaks in legalese and doesn’t bother to explain the terms they use, look for someone else.
- Availability. Will the attorney be available for conferences at your convenience, not theirs? How quickly can you expect emergency phone calls to be returned?
- Rapport. Is this someone you can get along with? You’ll be discussing matters close to your heart, so make sure you feel comfortable doing so.
- Reasonable fees. Attorneys charge anywhere from $50 to $1,000 or more per hour. Get quotes from several firms before making your decision. However, beware of comparing one attorney with another on the basis of fees alone. The lowest hourly fees may not indicate the best value in legal work because an inexperienced attorney may take twice as long as an experienced one to complete a project.
- References. Ask what types of businesses or cases the attorney has worked with in the past. Get a list of clients or other attorneys you can contact to discuss competence, service and fees.
When you hire an attorney, draw up an agreement (called an “engagement letter”) detailing the billing method. If more than one attorney works on your file, make sure you specify the hourly rate for each individual so you aren’t charged $200 an hour for legal work done by an associate who only charges $75 an hour.
This agreement should also specify what expenses you’re expected to reimburse. Some attorneys expect to be reimbursed for meals, secretarial overtime, postage and photocopies. Agree to reimburse only reasonable and necessary out-of-pocket expenses.
No matter what methods your attorney uses, here are steps you can take to control legal costs:
Have the attorney estimate the cost of each matter in writing, so you can decide whether it’s worth pursuing. If the bill comes in over the estimate, ask why. Some attorneys also offer “caps,” guaranteeing in writing the maximum cost of a particular service. This helps you budget and gives you more certainty than just getting an estimate.
Learn what time increments the firm uses to calculate its bill. Attorneys keep track of their time in increments as short as six minutes or as long as half an hour. Will a five-minute phone call cost you $50?
Request monthly, itemized bills. Ask for monthly invoices and review them. The most obvious red flag is excessive fees; this means that too many people—or the wrong people—are working on your file. It’s also possible you may be mistakenly billed for work done for another client, so review your invoices carefully.
See if you can negotiate prompt-payment discounts. Request that your bill be discounted if you pay within 30 days of your invoice date. A 5 percent discount can add thousands of dollars to your bottom line.
Be prepared. Before you meet with or call your lawyer, know exactly what you want to discuss. Send needed documents ahead of time so your attorney doesn’t have to read them during the conference and can get right down to business.
Meet with your lawyer regularly. This may not seem like a good way to keep costs down, but you'll be amazed at how much it reduces the endless rounds of phone tag that plague busy entrepreneurs and attorneys. More important, a monthly five- or 10-minute meeting (even by phone) can save you substantial sums by nipping small legal problems in the bud before they even get a chance to grow.