I was reading an article today on Canoe’s Money page and it is from Forbes and suggests seven tips for reducing your legal fees. They are:
1. Come prepared
3. Start with a standard template
4. Eliminate inefficiencies
5. Talk off the clock
6. Cut a deal – eg. deferred fees; and
7. Cut a worse deal – eg. pay for advice through equity in your business.
Some of these good tips. Coming prepared to a meeting with your lawyer and knowing what you want to accomplish from the meeting and from the legal work is a very good way to reduce fees. But not always. Part of my job is to ensure that you have looked at all of the angles (at least the legal angles) and often there are issues that you have not considered – that’s why you come to me for legal advice.
Eliminating inefficiencies by ensuring that there is one contact person who can “call the shots” is helpful and avoids the need for the lawyer to run around and build a consensus decision. Again, good advice.
Talking off the clock occurs – I do it quite frequently. However, please realize that if I did this all the time, I would put myself in the poor house.
Cutting deals for deferred fees or equity in the company has its drawbacks. The first is that the lawyer has to feel very secure that he/she will ultimately get paid. Given the failure rate of many small businesses, don’t hold your breath on this option. As for taking equity in the company, this runs the risk of conflicts of interest arising – is the lawyer giving you good advice for the company or good advice to protect his/her equity investment?
This leaves the two tips with which I really have difficulties. The first is self-incorporation. I always have fits when people talk about how cheap it is to incorporate and that you can do it yourself. My biggest problem with this advice is that it completely ignores that there are two distinct aspects of what is commonly called “incorporation” – there is incorporation itself and organization. Incorporation is the process by which the company is “born” (for lack of a better phrase). Organization is the process by which the company is given the power to do things – open a bank account, determine who are shareholders, determine who are directors, who can sign what documents, etc., etc. I had clients who came to me last year and asked how much to incorporate – I explained the incorporation and organization processes and my standard fee. They decided to do it themselves. They did an OK job on the incorporation (not fantastic, but far from terrible). The problem arose, however, when they had to do their taxes this year and the accountant asked them a whole bunch of questions – questions which could only be answered through the organization process. To make matters worse, they had made certain government filings which did not reflect an efficient organization for the company. The result was that I had to go back, organize the company as it was reflected in the government filings to keep things consistent, then clean up the mess. The end result was that the organization and clean up were more than my original quote.
The other tip is “start with a standard template”. There is absolutely no question – lawyers have standard templates (or precedents) that they use all the time. However, one of the first things they teach you in law school is that if you slavishly follow any template or precedent, you are bound to screw up. Take a rollover agreement I was doing the other day. Part of the agreement required a simple promissory note for the value of the accounts receivable – but the agreement called for no interest. All of the precedents I had in my precedent library on my computer system and in my precedent books all had interest accruing. I ultimately had to modify the best precedent to suit my client’s needs since the templates didn’t cut the mustard. Conversely, I recently saw a client who had drafted its own “simple” promissory note when what was needed is known as a “grid note”. The client had taken a prior promissory note that had been used in an earlier deal – ie. they started with a standard template. The problem was, though, that they started with the wrong template and did not know better. The result is litigation between my client and the maker of the note as to what are the obligations. By trying to reduce legal fees and using the wrong template, the client now has headaches and increased legal fees from litigation. In both my situation and the client’s situation, the starting with a standard template was of little assistance, at best.
As the article mentions, be careful because sometimes you get what you pay for.