How does a small business budget for legal services? What should I spend on legal services annually for my business? These are questions that business owners may be asking themselves (or may not be), and are probably having a hard time answering. Mainly because most law firms are still using antiquated business models like the billable hour, or only offer reactive services (which are more expensive and unpredictable) as opposed to proactive legal services.
Adding to the difficulty of figuring out a budget for legal services are a couple of other considerations. First, most businesses are in the mindset of they don’t have any legal issues or needs as long as they aren’t getting sued - they probably aren’t thinking about legal services or a budget for them at all, and will likely be facing large legal bills when something does go wrong. Second, you’re usually talking about some hourly rate (which could be anywhere from $100-$1,000 per hour depending on where you’re located and the type of work you need done) in addition to charges for things like copies and faxes which can cost up to $1 per page. Third, it’s common practice for lawyers to charge different rates for different types of work and the majority of laws aren’t able to give you anywhere near an accurate quote until their done with your case or project.
All of this combines to make the cost of legal services murky at best, and it’s completely understandable why a small business owner would want to avoid legal services in general, not to mention spending any time considering a budget for legal services. It’s nerve wracking trying to answer questions like how much should I budget for legal services, how much will a lawyer cost, and how do I know if I’m paying the right amount for services.
Legal services for your small business should be more of a long term game and you should be prepared heading into it. Here are some things to consider when thinking about how much you can budget for legal services.
Identify Your Company Goals.
Your company’s business and strategic goals are a good place to start thinking about legal services because businesses, especially small businesses, should be using legal services to advance their company’s strategic plans. Are you looking to expand your product or service offerings, create new products or services? Maybe you’re looking at expanding your territory and bringing on additional employees or independent contractors. Are you launching new marketing initiatives or forming strategic partnerships to pursue new business opportunities? Whatever your company’s future business goals may be, knowing them is a good starting point in thinking about what you are willing to budget for legal services.
Identify Your Legal Risks.
Admittedly, this can be difficult for any business (it’s why large companies have general counsel, they don’t know what there risks are either). You can, and should, look for attorneys who will give you a free consultation to help you identify what some of your risks are. Small business have generally the same legal risks that big companies have, and while they may differ in scale, small businesses are much less likely to be able to handle the impact of a lawsuit or legal problem. Good starting points are contracts, employees, independent contractors, corporate formalities and regulations that may govern your industry; most business face some combination of those, and many have all of them to deal with at the very least.
What Does Your Business Want In Terms of Legal Services?
This might be another area that small business owners don’t spend much time thinking about; most business owners don’t think they have any legal issues as long as they aren’t getting sued and there is a strong prevailing attitude of “that won’t ever happen to me.” That may not be the case though, odds are you're not going to make it through the life of your business without having some sort of dispute or legal issue come up. There are a few options to consider in terms of what your business wants in terms of legal services.
- One option is that you call a lawyer every time an issue, dispute or lawsuit comes up. It’s reactive, and more expensive, both in terms of money and time, to deal with issues in this manner. You can expect hourly rates, which you’ll know up front, but no ballpark on how much time it will take (a typical example is somewhere between five and 30 hours); good luck budgeting for that.
- Another option is to find a law firm that can provide your business with proactive legal advice, geared towards your business strategy, and acting in the capacity of adviser and counselor to address issues before they become full blown disputes or court cases. Look for upfront pricing so you can plan for it, and ideally you can get a predictable cost that makes budgeting easy. Finding a firm that’s transparent and efficient is key.
Investing In Legal Services Is A Win-Win For Your Business
A big part of a lawyers job in working with businesses should be to make sure that they are protected as the business grows and executes its strategy, and to minimize potential risks at the same time; providing some peace of mind. Often, the individuals controlling the money are reluctant to hire legal services, claim they don’t have the money in the budget and don’t see the need because there are no legal issues they are aware of. What they fail to realize is that most businesses have some unrecognized risks that exponentially expand (becoming more dangerous) as the company grows, and legal services can have a positive impact across departments in the long run.
Utilized correctly, legal services and risk management can, and should, be integrated into company operations, so potential issues can be spotted, addressed and resolved before anything blows up - saving the company money, time and headaches. The right legal partner can even save your company money and have a positive impact on your bottom line.
Want to find out if you're on the right track identifying your potential risks? Contact us for a free consultation to evaluate your current efforts.