An Ounce Of Prevention

Perhaps the biggest mistake I see small business owners make in my law practice is not hiring an attorney soon enough.  At least once a week I talk to a potential client about a case that could have been avoided entirely if the client had engaged a lawyer before their problem began instead of waiting until the problem had grown unmanageable.

Small business owners seem to view attorneys as an unnecessary cost to the business until there is a major problem.  This is a little like having chronic high blood pressure, but treating physicians and prescription medication like unnecessary costs until you suffer a stroke.  And, just like there is a big difference between paying for preventative medical care versus a lengthy hospital stay, there is also a big difference between paying for early legal advice and paying for litigation.  Preventing calamity is always cheaper than coping with it.

Contrary to popular belief, it isn’t necessary to spend obscene sums to keep yourself out of hot water.  I’ve never seen a “rule of thumb” for how much money a small business should budget for attorneys’ fees each year, but in my experience, I would say generally that budgeting $1,000 to $2,000 a year for preventative lawyering would be prudent.

So how are you spending that budget?  There are key points in the journey of every small company at which legal services are crucial to the health of your business:

  • When the business is originally organized as a sole proprietorship, LLC, C-Corp, S-Corp., etc.  A good attorney can advise you on how to organize your business to save on taxes, minimize liabilities, ensure you are properly licensed, and achieve other important objectives.
  • When negotiating a commercial lease.  No, your commercial real estate agent isn’t going to do a good job of flyspecking your lease to make sure your interests are fully protected.  This is an area where taking chances can really harm you down the road.
  • When negotiating a key contract for your business, such as a long-term supply contract or a contract with a key employee.
  • When there is any change in equity ownership.  Whether you are taking on a partner, conveying an equity interest to a new investor, or selling your business outright, you need an attorney to carefully review and advise you on the proposed transaction.
  • When you are considering terminating a troublesome employee.  Employment law is not always straightforward or logical.  Sometimes the action that feels wrong to most employers is actually the right choice.  Before terminating an employee, reach out to an attorney experienced in employment matters to check your gut.
  • When a regulatory authority comes calling.  One of the biggest mistakes a small business owner can make is attempting to respond to an “initial notice” or notice of investigation without a lawyer’s assistance.  Making the wrong move early in the process can have significant adverse affects on the later stages (and the outcome).

The average small business is likely to have only one or two of these major events happen each year.  That’s one or two encounters with their attorney, each of which is likely to cost somewhere between $500.00 and $2,000.00.  Compared to the costs of litigation or business disruption, this is a bargain.

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