There are two professionals every business will need early on: an accountant (which we went over already, re-read it here) and a lawyer. The reasons for hiring an accountant are pretty obvious--you need someone to help you set up your "chart of accounts," review your numbers periodically, and prepare all of your necessary federal, state and local tax returns. The reason for hiring a business attorney may not, however, be so apparent. A good business attorney will provide vital assistance in almost every aspect of your business, from basic zoning compliance and copyright and trademark advice to formal business incorporation and lawsuits and liability. First, some general rules about dealing with lawyers:
Like doctors, lawyers are becoming increasingly specialized. Someone who does mostly wills, house closings and other "non-business" matters is probably not a good fit for your business. At the very least, you will need the following sets of skills. The more skills reside in the same human being, the better!
1. Contracts. You will need a lawyer who can understand your business quickly; prepare the standard form contracts you will need with customers, clients and suppliers; and help you respond to contracts that other people will want you to sign.
2. Business organizations. You will need a lawyer who can help you decide whether a corporation or limited liability company (LLC) is the better way to organize your business, and prepare the necessary paperwork.
3. Real estate. Leases of commercial space--such as offices and retail stores--are highly complex and are always drafted to benefit the landlord. Because they tend to be "printed form" documents, you may be tempted to think they are not negotiable. Not so. Your attorney should have a standard "tenant's addendum," containing provisions that benefit you, that can be added to the printed form lease document.
4. Taxes and licenses. Although your accountant will prepare and file your business tax returns each year, your lawyer should know how to register your business for federal and state tax identification numbers, and understand the tax consequences of the more basic business transactions in which your business will engage.
5. Intellectual property. If you are in a media, design or other creative-type business, it is certainly a "plus" if your lawyer can help you register your products and services for federal trademark and copyright protection. Generally, though, these tasks are performed by specialists who do nothing but "intellectual property" legal work. If your lawyer says he or she "specializes in small businesses," then he or she should have a close working relationship with one or more intellectual property specialist.
What to Ask When Interviewing Attorneys
If a lawyer asks you for a retainer or deposit against future fees, make sure the money will be used and not held indefinitely in escrow, and that the lawyer commits to return any unused portion of the retainer if the deal fails to close for any reason. You should be suspicious of any lawyer who offers to take an ownership interest in your business in lieu of a fee.
Questions to Ask Yourself Before Hiring an Attorney
Cost-Saving Strategies
For many entrepreneurs, the idea of consulting a lawyer conjures up frightening visions of skyrocketing legal bills. While there's no denying that lawyers are expensive, the good news is there are more ways than ever to keep a lid on costs. Start by learning about the various ways lawyers bill their time:
No matter what type of billing method your attorney uses, here are some steps you can take to control legal costs:
- If you are being sued, it's too late. Most small businesses put off hiring a lawyer until the sheriff is standing at the door serving them with a summons. Bad mistake. The time to hook up with a good business lawyer is before you are sued. Once you have been served with a summons and complaint, it's too late--the problem has already occurred, and it's just a question of how much you will have to pay (in court costs, attorneys' fees, settlements and other expenses) to get the problem resolved.
- Big firm or small firm? Generally speaking, the larger the law firm, the greater the overhead, therefore the higher the hourly rates you will be expected to pay. Still, larger firms have a number of advantages over smaller ones. Over the past 20 years, lawyers have become incredibly specialized. If you use a solo practitioner or small firm as your lawyer(s), it's likely that they will not have all the skills you may need to grow your business. I don't know of any solo practitioner, and very few small firms (under 10 lawyers) that could handle your lawsuits, negotiate your lease of office or retail space, file a patent or trademark, draft a software license agreement, advise you on terminating a disruptive employee, and oversee your corporate annual meeting. Sooner or later, these "generalists" will have to refer you out to specialists, and you will find yourself dealing with two or three (or even more) attorneys.
Like doctors, lawyers are becoming increasingly specialized. Someone who does mostly wills, house closings and other "non-business" matters is probably not a good fit for your business. At the very least, you will need the following sets of skills. The more skills reside in the same human being, the better!
1. Contracts. You will need a lawyer who can understand your business quickly; prepare the standard form contracts you will need with customers, clients and suppliers; and help you respond to contracts that other people will want you to sign.
2. Business organizations. You will need a lawyer who can help you decide whether a corporation or limited liability company (LLC) is the better way to organize your business, and prepare the necessary paperwork.
3. Real estate. Leases of commercial space--such as offices and retail stores--are highly complex and are always drafted to benefit the landlord. Because they tend to be "printed form" documents, you may be tempted to think they are not negotiable. Not so. Your attorney should have a standard "tenant's addendum," containing provisions that benefit you, that can be added to the printed form lease document.
4. Taxes and licenses. Although your accountant will prepare and file your business tax returns each year, your lawyer should know how to register your business for federal and state tax identification numbers, and understand the tax consequences of the more basic business transactions in which your business will engage.
5. Intellectual property. If you are in a media, design or other creative-type business, it is certainly a "plus" if your lawyer can help you register your products and services for federal trademark and copyright protection. Generally, though, these tasks are performed by specialists who do nothing but "intellectual property" legal work. If your lawyer says he or she "specializes in small businesses," then he or she should have a close working relationship with one or more intellectual property specialist.
What to Ask When Interviewing Attorneys
- Are you experienced? Don't be afraid to ask direct questions about a lawyer's experience. If you know you want to incorporate your business, for example, ask if he or she has ever handled an incorporation.
- Are you well-connected? Your business attorney should be something of a legal "internist"--one who can diagnose your problem, perform any "minor surgery" that may be needed, and refer you to local specialists for "major surgery" if needed. No lawyer can possibly know everything about every area of law. If your business has specialized legal needs (a graphic designer, for example, may need someone who is familiar with copyright laws), your attorney should either be familiar with that special area or have a working relationship with someone who is. You shouldn't have to go scrounging for a new lawyer each time a different type of legal problem comes up.
- Do you have other clients in my industry? Your attorney should be somewhat familiar with your industry and its legal environment. If not, he or she should be willing to learn the ins and outs of it. Scan your candidate's bookshelf or magazine rack for copies of the same journals and professional literature that you read.
- Are you a good teacher? Your attorney should be willing to take the time to educate you and your staff about the legal environment of your business. He or she should tell you what the law says and explain how it affects the way you do business so that you can spot problems well in advance. The right lawyer will distribute such freebies as newsletters or memoranda that describe recent developments in the law affecting your business.
- Will you be flexible in your billing? Because there is currently a "glut" of lawyers, with far too many practicing in most geographic locales, lawyers are in a position to have to negotiate their fees as never before, and it is definitely a "buyer's market." Still, there are limits--unlike the personal injury lawyers who advertise on TV, business lawyers almost always will not work for a "contingency fee," payable only if your legal work is completed to your satisfaction.
If a lawyer asks you for a retainer or deposit against future fees, make sure the money will be used and not held indefinitely in escrow, and that the lawyer commits to return any unused portion of the retainer if the deal fails to close for any reason. You should be suspicious of any lawyer who offers to take an ownership interest in your business in lieu of a fee.
Questions to Ask Yourself Before Hiring an Attorney
- Is this person really a frustrated businessperson disguised as a lawyer? Some lawyers get tired of being on the outside looking in when it comes to business dealings. Such a lawyer may attempt to second-guess your business judgment. Be wary of a lawyer who takes too keen an interest in the nonlegal aspects of your work.
- Does this person communicate well? J. P. Morgan once said, "I do not pay my lawyers to tell me what I cannot do, but to tell me how to do what I want to do." The right lawyer for your business will not respond to your questions with a simple "That's OK" or "No, you can't do that," but will outline all your available options and tell you what other businesses in your situation normally do.
- Are the offices conveniently located? You will need to visit your attorney frequently, especially in your first few years in business. You should not have to waste a day traveling to and from the nearest city each time you need legal advice. When in doubt, choose a lawyer close to home.
- Do I like this person? Don't forget to follow your instincts and feelings. You should be able to communicate openly and freely with your attorney at all times. If you feel you cannot trust a particular lawyer or you believe the two of you have different perspectives, keep looking. Just remember that Ally McBeal is not reality: good looks and a dynamic personality are not as important in a lawyer as accuracy, thoroughness, intelligence, the willingness to work hard for you and attention to detail.
Cost-Saving Strategies
For many entrepreneurs, the idea of consulting a lawyer conjures up frightening visions of skyrocketing legal bills. While there's no denying that lawyers are expensive, the good news is there are more ways than ever to keep a lid on costs. Start by learning about the various ways lawyers bill their time:
- Hourly or per diem rate. Most attorneys bill by the hour. If travel is involved, they may bill by the day.
- Flat fee. Some attorneys suggest a flat fee for certain routine matters, such as reviewing a contract or closing a loan.
- Monthly retainer. If you anticipate a lot of routine questions, one option is a monthly fee that entitles you to all the routine legal advice you need.
- Contingent fee. For lawsuits or other complex matters, lawyers often work on a contingency basis. This means that if they succeed, they receive a percentage of the proceeds--usually between 25 percent and 40 percent. If they fail, they receive only out-of-pocket expenses.
No matter what type of billing method your attorney uses, here are some 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 increments of time 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. Some lawyers wait until a bill gets large before sending an invoice. Ask for monthly invoices instead, and review them. The most obvious red flag is excessive fees; this means 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 on legal fees can add thousands of dollars to your yearly bottom line.
- Be prepared. Before you meet with or call your lawyer, have the necessary documents with you and know exactly what you want to discuss. Fax needed documents ahead of time so your attorney doesn't have to read them during the conference and can instead get right down to business. And refrain from calling your attorney 100 times a day.
- Meet with your lawyer regularly. At first glance, 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 have a chance to grow.